Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

TRADE

Resolved,
That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions that there be laid before this House a Return of Statistics relating to Overseas Trade of the United Kingdom for the year 1987 and for each month during 1987.—[Mr. Durant.]

Oral Answers to Questions — ENVIRONMENT

"UK 2000"

Mr. Colvin: asked the Secretary of State for the Environment what representations he has received from local authorities about his Department's document on the environment entitled "UK 2000."

The Minister for Environment, Countryside and Planning (Mr. William Waldegrave): We have received 22 letters from local authorities and one from a local authority association.

Mr. Colvin: I am sure my hon. Friend will welcome the fact that local authorities have been among the first to welcome the initiative for tidying up Britain. I am sure also that the House will congratulate my hon. Friend on putting up £750,000 of Government money to help fund the scheme and welcome the fact that business has responded with a further £400,000, but, under the present financial restrictions placed on local government, will it be able to come in with its share of funding of a scheme which, if it is not based on plural funding, will probably not succeed?

Mr. Waldegrave: I agree with my hon. Friend. The initiative has got off to a good start with £400,000 coming from the private sector before any appeal has been launched, which bodes well for the future. Local authorities already carry an enormous burden of work in this area. I agree that they should be seeking co-operative schemes with the private and voluntary sectors and that "UK 2000" is a good way of doing that. They are already taking advantage of the increased provision that we have made for training with the help of the Keep Britain Tidy Group.

Mrs. Clwyd: Since some demolition work may be involved in "UK 2000" projects, will the Minister look at ways of tightening up the safety laws governing demolition when asbestos dust is present in view of the Appeal Court's ruling yesterday showing loopholes in the law?

Mr. Waldegrave: I saw the reports this morning, which I think deal with matters under the health and safety at

work legislation and potential defects in that. I shall discuss that matter with my hon. Friend who is responsible for those matters.

Mr. Chapman: As one of the objectives of "UK 2000" is to green our cities, will my hon. Friend confirm that with imagination physical improvement can be brought about, particularly in our inner city areas, at relatively little cost? Will he encourage competitions to find schemes which will contribute to that objective and cost relatively little?

Mr. Waldegrave: My hon. Friend is right. The combination of private sector money, local authority skills and volunteers can often do a great deal with little funding. My hon. Friend also makes the point that "UK 2000" goes much wider than a litter initiative. It is the first time that the seven principal voluntary organisations, ranging from Friends of the Earth to the Civic Trust, have sat down together to try to work out a strategy to cover schemes such as the rehabilitation of Tynemouth station.

Mr. Straw: Does the Minister recognise that much of the untidiness in Britain has been caused directly by other Government policies? Why have the Government cut 10 per cent. in real terms from the grant for refuse collection? I see the Secretary of State smiling. Perhaps he will explain why in April this year, as Secretary of State for Transport, he issued a circular saying that all litter bins should be removed from all trunk road laybys. How did that policy contribute to tidying up Britain?

Mr. Waldegrave: It is well known that the existence of those litter bins often turned out to be a source of fly tipping and dumping, making the situation worse. The truth, as the hon. Gentleman should know, because, unhappily for him, he has been stuck in his present job for a long time—

Dr. Cunningham: Listen to who is talking.

Mr. Waldegrave: I shall be delighted to remain in my job for several years more. However, the hon. Gentleman knows that if the worst and most inefficient local authorities came up just to the average on litter collection, more than that 10 per cent. could be saved.

Vandalism and Graffiti

Mr. Nicholls: asked the Secretary of State for the Environment what was the cost of vandalism and graffiti to local authority buildings and those for which his Department has responsibility during 1985; and if he will make a statement.

The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope): No central statistics are held by my Department on the cost of damage caused by vandalism and graffiti to local authority and Government buildings.

Mr. Nicholls: Does my hon. Friend accept that, even if there is no central information, the problem is considerable? Is he aware that a number of existing techniques could be used to great effect? Is he satisfied that the local authorities which might be able to benefit by the use of those techniques even know about them, and does he think that his Department could have a role to play in disseminating that sort of information?

Mr. Chope: I am not satisfied that all the techniques are well known to local authorities, but I understand that a


firm in my hon. Friend's constituency called Graffiti Management Ltd. is keen to evaluate existing ways of removing graffiti and to test new ones. I wish it success.

Mr. Cartwright: Will the Minister accept evidence from constituencies such as mine that the incidence of vandalism, on council estates in particular, can be substantially reduced by effective neighbourhood watch schemes? If that is so, is it not monstrous that some local authorities should deliberately obstruct the development of those schemes? Will he encourage them to see the error of their ways?

Mr. Chope: I wholeheartedly agree with the hon. Gentleman.

Mr. Heddle: Can my hon. Friend confirm that some Labour authorities are refusing to remove certain graffiti, on the ground that it is sexist or racist? More seriously, will my hon. Friend confirm that the more people who buy flats in local authority owned blocks, the more pride they will have in their own environment and, furthermore, the more that tenants become involved in the government of their own environment the greater respect they will have for the common parts, such as the lift or the staircase?

Mr. Chope: I agree with my hon. Friend. I understand that Camden council, for example, discriminates against certain sorts of graffiti. A ratepayer telephoned recently to ask for the removal of the slogan, "Kilroy was here." He was told that it would not be possible to have that removed. He then inquired further and was told that if the graffiti had said, "Kilroy was queer" the council would remove it.

Mr. Dubs: Does the Minister recall that on 24 November his Department issued a press release announcing certain improvement grants to tackle graffiti and other matters? Is he aware that a grant of £105,000 was in that package for Wandsworth Plain estate in Wandsworth? Was he aware when the press release was issued that Wandsworth council had already disposed of that estate?

Mr. Chope: I do not have the detailed information on that. However, one thing is certain: the quality of the Wandsworth Plain estate is much higher than it has ever been.

Mr. Squire: Does my hon. Friend have any information to suggest that there has been an improvement in either the grammar or the spelling of graffiti since the Government came to office? In particular, can he draw any distinctions between graffiti in Labour education authority and Conservative education authority areas?

Mr. Chope: We shall have to consider seriously making inquiries and gathering statistics on that. Ultimately it depends on the quality of the local education authority.

Mr. John Fraser: When will the Minister raise his standards above that of the graffiti artist? Bearing in mind how much money is spent on things such as early warning systems and so on, how much money are the Government spending to find a simple antidote to the aerosol can and the felt tipped pen which disfigure so much of our public property and public transport, and much of which is abusive in racial and sexist terms to the general public? What are the Government spending on that which is an affront to many right-minded people?

Mr. Chope: When looking around the country, particularly in Southampton, some of the most offensive graffiti just says, 'Militant." As I understand it, that is something that Labour Members are prepared to support.

Marine Nature Reserves

Mr. Harris: asked the Secretary of State for the Environment when he last met members of the Nature Conservancy Council to discuss marine nature reserves.

Mr. Waldegrave: I met the chairman of the Nature Conservancy Council and council members at their 100th meeting in Peterborough on 2 December. The council expressed its pleasure at the designation by my right hon. Friend on 21 November of the first marine nature reserve at Lundy.

Mr. Harris: Now that the first marine nature reserve has been designated around Lundy, has my hon. Friend any plans for further designations? When considering any possible further reserves, will he ensure that the livelihood of fishermen is one of the factors taken seriously into account?

Mr. Waldegrave: Yes, Sir. The chairman of the NCC has written to me about Skomer, and there are about five more reserves in the pipeline. Time was taken in negotiating the first marine nature reserve largely because we tried to reassure the local fishermen. Now that Lundy has been established and we have shown that reserves can be established without endangering fishermen's livelihoods, I hope that we shall be able to proceed faster and perhaps with fewer suspicions.

Sir Hector Monro: Does my hon. Friend agree that time was taken to produce the first marine nature reserve because there was full consultation with recreation, fishing and other interests? Now that the pattern has been established, more reserves will be designated much more quickly.

Mr. Waldegrave: My hon. Friend has a record of distinguished service on the NCC council. I agree that it has been worth proceeding slowly and carefully. That having been done, I hope that we can accelerate progress.

Common Land

Mrs. Shields: asked the Secretary of State for the Environment when he will publish the Green Paper on reform of common land legislation.

The Secretary of State for the Environment (Mr. Nicholas Ridley): Yes Sir; as soon as possible.

Mrs. Shields: What proportion of common land does the Secretary of State think is likely to be deregistered when the Government introduce legislation on this matter?

Mr. Ridley: A consultation paper will be published early in the new year and legislation will follow as soon as it is possible for the Government to find time to bring it forward. I can assure the hon. Lady that the legislation will be high in our programme, but I cannot speak for the Opposition.

Mr. Colvin: Is my right hon. Friend aware of the difficulty that has been experienced by commoners this year in evicting hippy convoys from common land? Will


he ensure that at least one section of the Green Paper deals with this problem, which may be a recurring one, especially in my constituency?

Mr. Ridley: I am aware of these problems because I have such a common in my constituency. I think that my hon. Friend will be reassured by the action taken under the Public Order Act 1986 to deal with the problem. I hope that that action will be satisfactory.

Mr. Barron: Is the Secretary of State aware that over 30 years ago a Royal Commission said that when dealing with common land, the ownership of the soil, the boundaries of the land and the common rights should be on the public record? Past legislation has failed grossly to meet those criteria, especially in respect of ownership. Will the right hon. Gentleman give an assurance that any new legislation will include provisions to enable the public to check the ownership of common land claimed by individuals?

Mr. Ridley: Under the chairmanship of the Countryside Commission, the Common Land Forum has produced a nearly unanimous report on what new legislation should contain. That is such an achievement that the House would be wise not to suggest deviations from what is recommended, without good reason. I hope that the consultative paper will be met with the same nearly unanimous reception.

Dr. David Clark: When does the Secretary of State intend to publish the consultative paper? Secondly, will he be more explicit about when he expects to be able to draw conclusions from it? I think that there is accord on both sides of the House that the work of the Common Land Forum—covering the views of the National Farmers Union, the Country Landowners Association and all the amenity bodies—is a worthy basis for legislation, and we expect early proposals from the Government.

Mr. Ridley: I am grateful for the hon. Gentleman's welcome. I have said that we hope to publish the consultative paper early in the new year. It has not been possible to do that before the House rises for the Christmas recess. Consultation will take place for several months and we look forward to hearing what the public think. I am grateful for the hon. Gentleman's support.

Local Government Finance

Mr. Allan Roberts: asked the Secretary of State for the Environment when he next proposes to meet the Consultative Council on Local Government Finance to discuss local government finance and the 1987–88 rate support grant settlement.

The Minister for Local Government (Dr. Rhodes Boyson): The Secretary of State and I have no proposals to meet the Consultative Council on Local Government Finance to discuss further the 1987–88 rate support grant settlement.

Mr. Roberts: Will the Minister admit that the Secretary of State and his predecessors have been breaking the law since 1980, because of political interference in the drafting of that legislation, which was urged by Tory local authority associations to enable those authorities to increase rents and to make profits on housing revenue accounts that could be deducted from their total expenditure so that they could obtain extra grant? Was not

that political interference with the legislation, which has made the Government behave illegally for the past seven years, a scandal?

Dr. Boyson: The simple answer is no. Obviously, amendments will be made shortly to the 1980 Act. However, that legislation was introduced at the request of the local authorities—

Mr. Roberts: Tory local authorities—

Dr. Boyson: In 1980, presumably at least one local authority was labour-controlled, even if one needed a magnifying glass to find it. The hon. Gentleman's reaction shows the danger that arises when a Government become over-reasonable in dealing with people.

Mr. Holt: When my hon. Friend holds his discussions, will he take up the question of rent arrears from council tenants, as the figures are now astronomical? In Middlesbrough, in my rate-capped constituency, £1 million of arrears is an utter disgrace.

Dr. Boyson: I entirely agree with my hon. Friend. If there were a league table, I think that Brent would be even higher, since about 60 per cent. of council house rents and rates are not collected each year. I share my hon. Friend's view, and I am aware that the councils that shout loudest for more money would not need it if they collected the rents and rates due to them.

Mr. Simon Hughes: In the light of yesterday's farcical statement on local government finance, can the Minister say how he will deal with rate-capped authorities? As the Government have now taken responsibility for determining the finances—there was one sentence in yesterday's statement—may we at least have a guarantee that authorities will be considered separately and that each authority's finances will be given due and proper consideration?

Dr. Boyson: I do not think that yesterday's statement was farcical—[Interruption.] A Government of a different hue would not have acted on the information, and that would have been farcical. I understand the hon. Gentleman's concern about rate-capped authorities. However, my right hon. Friend the Secretary of State said yesterday that the rate-capped authorities would know what their spending limit was, as that would appear on the face of the Bill. We have been seeing people regularly before making up our minds. Indeed, we shall continue to do so until this Friday. There is a longer queue of people wanting to see us than would be found in any dentist's surgery, but in this case they want to take extractions instead of giving them. However, the figures will be on the face of the Bill.

Mr. John Mark Taylor: Does my hon. Friend believe that the rating environment would be considerably improved if local authorities confined themselves to their statutory responsibilities, desisted from social engineering, and got rid of unnecessary landholdings?

Dr. Boyson: I have not heard a better or shorter speech in the House today. If Opposition Members adopted that as a new year resolution, the world would be a better place next year.

Mr. Madden: How can the Minister be surprised that his Department is besieged by people wanting to see him, when he and his ministerial colleagues keep doing daft


thinks and keep robbing ratepayers of money? I assure him that his Department's reputation does not ride high in Bradford, which has suffered the second biggest cut in rate support grant of any metropolitan district in the country. Recently we had to take the Department to court, as we again challenged the rate support grant figures.
Will the Minister give an undertaking that there will be an urgent review of the rate support grant settlement for Bradford, especially given yesterday's lamentable statement, which clearly shows that yet again his Department has broken the law more often than any Department in living memory?

Dr. Boyson: I shall try to remember at least some of the points made by the hon. Gentleman in his speech. He said that more money was needed for Bradford. Bradford football club should get more money, because it is in a higher division. I should like to mention to the hon. Gentleman, in fairness to my right hon. Friend the Secretary of State and myself, that long before the events of yesterday unfolded themselves in the House people were beating a path to see my right hon. Friend and myself, which is a recognition of our reasonableness in dealing with people and the attractiveness of our conversation.

Mr. Watts: As it has proved necessary to find legislative time to plug a few loopholes in the 1980 legislation, will my hon. Friend consider whether it might make better sense to make use of that time to scrap the present unsatisfactory and unfair system and introduce a fairer and simpler system such as that set out in the Government's Green Paper? May I assure my hon. Friend that such an approach would be extremely welcome in my county of Berkshire, and, I suspect, in many other areas?

Dr. Boyson: I welcome my hon. Friend's comments. I know that throughout the country thousands, indeed millions of people are awaiting the introduction of what we proposed in the Green Paper. Most people want legislation immediately, but they will have to wait a little longer. We have promised that legislation, at the latest, in the first Session of the next Parliament. [HON. MEMBERS: "Now."] Hon. Members may say, "Now", but they must wait. One cannot have all the goodies at once. Father Christmas does not go everywhere in one day.

Dr. Cunningham: Why is it that we have just the understudy in today's matinee performance of this Whitehall pantomime? The Minister is now forced to admit that he knew of this fiasco in October. Why has the Secretary of State for the Environment gone through the charade of issuing two more consultation documents on rate support grant without being frank and candid with the House and with the local authority associations about the desperate situation in which he finds himself? Would it not have saved weeks of time, and would it not have eliminated several months of delay, if the Secretary of State had began immediately, as soon as he found out the problem, to discuss solutions with the local authority associations—all of them? Why was the right hon. Gentleman not able to do that? Surely that would be not only the quickest and best way, but the most honest way of resolving the problem?

Dr. Boyson: We are running three plays simultaneously. We have a recycling Bill, a local government Bill—the goodies are coming all the time—and now we have this Bill, so we need a heavier cast. One cannot run all three

plays with the same cast. Let me answer the hon. Gentleman's question. My right hon. Friend the Secretary of State made it clear yesterday that, if he had come to the House at the end of October when the information came into his hands and said, "We have a problem. We do not know what to do about it," Opposition Members would have been the first to object. Instead, my right hon. Friend had to take careful legal advice, having once been slightly misled by taking the advice of the local authority associations. It would have been a disappointment to hon. Members if we had not taken legal advice before we came to the House.

Sellafield

Mr. Geraint Howells: asked the Secretary of State for the Environment what recent representations have been received from the Irish Government about discharges to the environment from Sellafield.

Mr. Ridley: I am aware that the Dail passed a resolution on 3 December calling for the closure of Sellafield. In view of the improvements that have taken place at the plant since 1979, to which the recent safety audit by the Health and Safety Executive has drawn attention, I regard the Dail's resolution as misconceived. British Nuclear Fuels Ltd. is undertaking a multi-million pound capital programme at Sellafield, which has already reduced discharges to the environment to one sixth of the level in 1979, and further reductions should be achievable in the 1990s.

Mr. Howells: Now that the Secretary of State has confirmed that the Irish Government want the Sellafield reprocessing plant to be closed due to the threat to health, the environment and the fishing industry, what are his views?

Mr. Ridley: That is not what I said. The hon. Gentleman has got it wrong. The Dail is not the Government. He might as well equate the House of Commons with the Government of this country, but I would not expect him to make such a mistake. In fact, 99·8 per cent. of the radioactivity in the Irish sea is natural radiation. Most of the remaining 0·2 per cent. comes from fallout from past nuclear weapons tests. There is no appreciable evidence that the Irish sea has suffered from Sellafield.

Mr. Forth: When considering the representations on this issue, has my right hon. Friend put them alongside those from other Governments about emissions from coal-fired power stations—for example, concerning acid rain—or about oil leaks caused by extracting oil from the earth? Can he put all these matters together and weigh up the fact that all sources of energy have their hazards? We must not get the impression that any one source of energy is necessarily more dangerous or hazardous than any other.

Mr. Ridley: We seem to be getting a great deal of advice on energy policy from many other countries. It is right that the Government should continue to provide the cheapest energy possible for industrial and domestic consumers compatible with the highest levels of safety and environmental purity.

Mr. John David Taylor: Is the Minister aware of the concern on the Isle of Man and in Northern Ireland about


Sellafield? Does he intend to approve any further nuclear plants that will discharge nuclear waste into the Irish sea? Should not the present recommended safety measures be carried out at Sellafield within the next 12 months? Will he consider the closure of Sellafield?

Mr. Ridley: The right hon. Gentleman will be reassured to know that an expert committee commissioned by the Irish Department of Health published a report last month that demonstrates clearly that Sellafield has had no observable environmental impact on the incidence of childhood leukaemia along the east coast of Ireland since the study started in 1977. That is not a British Government but an Irish Government view. I am sure that the right hon. Gentleman will be reassured by that.

Mr. John Mark Taylor: Does my right hon. Friend accept that, despite all the excitement that is sometimes generated about Sellafield, the plant operates comfortably within any known international safety tolerance? Is not nuclear-generated electricity the cheapest in the world? Is not this country now beginning to import it from France?

Mr. Ridley: My hon. Friend is absolutely right. It is time that we took credit for the enormous improvements that have taken place at Sellafield. It now has a very high record on operating safety, as was recently endorsed by the HSE audit. I congratulate Sellafield on behalf of the House on that massive achievement.

Dr. Cunningham: While no hon. Member should defend policies concerning past discharges into the Irish sea, will the right hon. Gentleman ask the Government of the Republic of Ireland what scientific or medical evidence they can provide to support their position and whether they will publish any such evidence?
Will the right hon. Gentleman ensure that the Health and Safety Executive's audit is provided in the Vote Office? Hon. Members and others have asked for the report and it should be available to the House. Will he ensure that the management of British Nuclear Fuels complies with the directions of the Health and Safety Executive within the 12-month time scale envisaged? Will he—[Interruption.]—right hon. and hon. Members have a lot to say about these matters—[HON. MEMBERS: "Get on with it."] I am sorry that these matters, which are of crucial importance, are treated with such scant regard by Tory Members. Will the Secretary of State ensure that there is the necessary investment by British Nuclear Fuels at Sellafield to eliminate discharges to the Irish sea?

Mr. Ridley: I congratulate the hon. Member on having the wisdom to ask that question rather than leaving it to the hon. Member for South Shields (Dr. Clark), who is responsible for these matters on the Opposition Front Bench. His good sense as a constituency Member with the interest of his constituents at heart and his sound attitude to these matters puts the hon. Member for South Shields right into the shade. We now know where power resides on the Opposition Front Bench and we are very pleased to know it. [Interruption.] I am trying to praise the hon. Gentleman.
I entirely endorse the hon. Gentleman's point that it would be a very good idea if the Irish Government would produce any scientific evidence that they may have of pollution of the Irish sea arising from Sellafield. I shall make immediate inquiries to ensure that the Health and Safety Executive audit is available in the Vote Office. By

law, Sellafield must comply with the report within a year. My right hon. Friend the Secretary of State for Energy will ensure that adequate resources are available to BNFL to carry out the necessary investment in years to come. Massive investment is already taking place and will continue.

Sulphur Emissions

Mr. Wigley: asked the Secretary of State for the Environment when he expects the United Kingdom to have reduced sulphur emissions to 70 per cent. of their 1980 level.

Mr. Waldegrave: By the end of the 1990s, if not before.

Mr. Wigley: Is the Minister aware that more than 200 lakes in Wales are now devoid of fish life due to growing acidification and that a survey in Scotland has shown that a reduction in emissions of more than 50 per cent. is required to abate the acidification level? As the Government's programme will achieve a reduction of only 14 per cent., will the Minister consider a further programme of investment, with particular regard to Aberthaw power station in Wales?

Mr. Waldegrave: I am well aware of the Welsh situation, but in referring to it the hon. Gentleman reminds us of the other issues involved. A good deal of the Welsh acidification has probably been caused by forestry. The programme announced by the Government will achieve a 14 per cent. reduction in addition to cuts already in train. We shall have achieved a reduction of perhaps 55 per cent. from peak by the mid-1990s. Few countries will have done better than that.

Mr. McCrindle: Can my hon. Friend tell us anything about mercury emissions and whether there are any plans for a reclamation programme for the millions of batteries jettisoned by people in this country every year?

Mr. Waldegrave: That is a serious matter, on which the European Community is preparing a directive. There has been contact with manufacturers in recent years to secure a reduction in the amount of mercury in batteries, but further action may be required.

Mr. Alton: Is the Minister aware that his replies have not changed since January, despite the Prime Minister's much-vaunted visit to Norway, and that nothing has been done to take this country into the 30 per cent. club of nations or to incorporate fluidised bed combustion units in our power stations to reduce emissions of sulphur dioxide, of which 300,000 tonnes continue to fall on the people of Norway every year from our coal-burning power stations?

Mr. Waldegrave: An excellent article in this week's New Scientist shows a shift in scientific consensus towards nitrogren as being responsible for the damage.

Mr. Allan Roberts: It is tree damage.

Mr. Waldegrave: As the hon. Gentleman says, it is tree damage. These matters are always changing. Another change since the hon. Member for Caernarfon (Mr. Wigley) asked about this in January has been the commitment of £600 million of electricity consumers' money to improve the situation further.

Council House Sales

Mr. Colin Shepherd: asked the Secretary of State for the Environment when he expects to publicise the new discounts for council flats under the Housing and Planning Act.

The Minister for Housing, Urban Affairs and Construction (Mr. John Patten): The new discount scale will be brought into operation from 7 January. An information campaign to draw the attention of tenants of flats to the new scale and other changes in the right to buy will be launched early next year.

Mr. Shepherd: I welcome my hon. Friend's announcement, but can he give a little more detail about the publicity? Will it be sent to all council flat tenants personally, and will those who have already bought their homes be informed of the new discount claw-back periods?

Mr. Patten: We are doing everything that we possibly can to meet the second of my hon. Friend's requests. As for the first, we shall endeavour, with the co-operation of local authorities, to ensure that every flat dweller in England receives publicity about his or her new rights. I am happy to report that many local authorities, of all political colours, are co-operating freely with us. Only 40,000 of the 1 million public sector houses that have been sold thus far have been flats. We must improve that, and we must improve it fast.

Mr. Tony Banks: Does the Minister agree that, rather than put out more incentives to sell off council accommodation, it would be better to allow local authorities to spend the estimated £7 billion of accumulated capital receipts from earlier sales of council property? Newham has more than 100 tower blocks, which one could not even give away, let alone sell. People do not want them. We want to build houses and low-rise accommodation. Why will the Minister not let the local authority spend the money that it has in the bank just earning interest?

Mr. Patten: The hon. Gentleman is right. It is sometimes easy to give away the family silver, but I suspect that it is also quite easy sometimes to give away tower blocks to people who want to develop them. The hon. Gentleman has put his finger on it. There are 100 tower blocks in his constituency. They are the mistakes that we all made collectively in the 1950s, 1960s and 1970s. The Government believe that one way in which to improve the environment of those tower blocks is to vary the tenure. That is why we are making certain that all tenants know their rights.

Mr. McLoughlin: Will my hon. Friend consider extending the scheme to enable all council houses that are empty for more than 12 months to be sold on a homesteading basis to people who live in the district, thus giving them the opportunity to improve those houses and the council housing stock?

Mr. Patten: That is a tempting suggestion. As I speak, there are 115,000 empty publicly owned flats and houses in England.

Mr. Loyden: When can we expect the Minister to extend his generosity to rented housing in the private sector and offer tenants of privately rented flats the discount that he is making available to council tenants?

Mr. Patten: The Government have a twin track approach to improving the lot of tenants of flats. In the public sector we are giving them a radically increased discount and incentives and, in a Bill which is to be introduced after Christmas, we shall do all that we can to help the condition of tenants in private sector blocks of flats following the recommendations of the committee chaired by Mr. Edward Nugee, QC.

Water Rate

Mr Hicks: asked the Secretary of State for the Environment what representations he has received from water authorities about the 1987-88 water rate; and if he will make a statement.

Mr. Ridley: I have now received responses from the chairmen of most authorities. The overall reaction is that the settlement is reasonably fair.

Mr. Hicks: As the external financing limits of water authorities have been increased by some £14 million nationally, why has the provisional figure of £1 million for the South West water authority been withdrawn, with the probable effect of water rate increases of 5 per cent. rather than less than 4 per cent.?

Mr. Ridley: The settlement for the South West water authority allows it an average increase of 9 per cent. in investment, with only average increases in charges of under 6 per cent. It has the highest operation cost rises among those that are planned for next year. If it could hold its operating costs to something near the rate of inflation, it would be able to have higher investment or lower charges, or both.

Mr. Boyes: Nevertheless, the Secretary of State must be aware that some chairmen of water authorities are expressing concern. For example, in a letter to my right hon. Friend the Member for Bristol, South (Mr. Cocks) the chairman of Wessex Water says that the large reduction in borrowing imposed by the Government leaves the authority with a dilemma—either to increase charges to a level which the authority regrets, or to postpone capital work to the detriment of present standards of service. Because, since 1978–79, water authority charges have increased by a staggering 143 per cent., is it any wonder that Mr. Anson, Mr. Watts, the Confederation of British Industry and others are expressing concern about the Government's attitude to the water industry?

Mr. Ridley: The hon. Gentleman must know of the massive increase in investment in water, but I question the extent to which that should be described as investment. It is largely a matter of replacing worn-out capacity and renewing the capital stock of the water authorities. It is an overhead and an on-cost which should properly be paid for from charges, which is why the charges have increased. It would be wrong to borrow to replace normal assets.

Sport (Sponsorship)

Mr. John Carlisle: asked the Secretary of State for the Environment what recent discussions he has had with members of the tobacco industry regarding the sponsorship of sport; and if he will make a statement.

The Parliamentary Under-Secretary of State for the Environment (Mr. Richard Tracey): I am now coming to


the end of detailed negotiations leading to a new voluntary agreement. I hope to make a statement early in the new year.

Mr. Carlisle: Many people in the sports world will be somewhat disappointed that my hon. Friend has not reached a conclusion with the tobacco companies. At this late hour, will he remember that sport has benefited enormously from the tobacco industry? In further negotiations will he remember that that money will not be easily replaced? Will he give the House a categorical assurance this afternoon that the Government will not go down the road that the Labour party has followed and outlaw tobacco sponsorship in sport?

Mr. Tracey: As I made clear in the House on 21 February, I have always believed that a voluntary agreement is the right way. Indeed, a considerable contribution has been made to sport through sponsorship, although as a proportion of the whole of sport sponsorship the tobacco contribution is declining.

Mr. Freud: Will the Minister also remember that an increasing number of young children are now smoking and that it is absolutely essential to remove the glamour element of tobacco sponsorship in sport? Does he agree that while it is possible for children to ascribe their smoking habits to television sports programmes which are sponsored by tobacco companies, such sponsorship is not of service to the country?

Mr. Tracey: That is one of the points that we have considered carefully in our negotiations with the tobacco companies. The voluntary system was first adopted in 1972. Now 36 per cent. of men and 32 per cent. of women smoke, compared with 52 per cent. and 41 per cent. in 1972. That is an improvement and it is continuing.

Mr. Robert Atkins: Does my hon. Friend agree that cigarette companies in particular have done an amazing job in supporting the great game of cricket both here and in Australia? Does he further agree that this obsession with doing away with an organisation's support for great games, such as cricket, does those associated with the move no great credit? Does he agree that the sooner we lay off it and concentrate on the real issues the better it will be for all concerned?

Mr. Tracey: When we began the negotiations leading to the new voluntary agreement we began consultations with all interested parties. It is right to say that tobacco sponsorship has made a contribution to cricket, although that contribution is now declining, as it is in other sports.

Mr. Robert C. Brown: When will the Minister face up to the fact that, having banned direct tobacco advertising on television, to allow sponsorship of major contests, such as snooker championships, which many young people watch, is a direct incentive to youngsters to start smoking?

Mr. Tracey: As I said earlier, that is one of the points which we have taken into consideration during the negotiations, leading to a voluntary agreement.

Mr. Nicholas Winterton: Does my hon. Friend accept that the very parties in this House which preach libertarianism stand against people doing what they want to do, for example smoking? Will he assure the House that until the Government or any other organisation can provide sport with the resources currently provided by

tobacco companies, he will not take any penal action against the tobacco industry sponsoring what people want to do in sport?

Mr. Tracey: As I have said, and as I made clear as long ago as 21 February, the Conservative party believes that a voluntary agreement is the best way of dealing with sports sponsorship by tobacco companies. Tobacco sponsorship of sport now amounts to just short of £10 million, whereas the overall sponsorship of sports runs at £150 million a year.

Mr. Denis Howell: While welcoming the fact that the Minister is progressing with a voluntary agreement first started by a previous Labour Government, and declaring an interest in the Howell report on sports sponsorship conducted on behalf of the Central Council for Physical Recreation, may I ask what attention he is giving to sport, and what negotiations he is having with those involved as distinct from the tobacco industry?

Mr. Tracey: As I said, from the beginning we have invited consultation from sport and, of course, from the Tobacco Advisory Council as well as from others. I am perplexed by the right hon. Gentleman's attitude, because he seems to take a different view from that of the hon. Member for Holborn and St. Pancras (Mr. Dobson), the shadow spokesman for health, who said on 21 February:
It is now and has been since 1982 the policy of the Labour party that we wish to stop the sponsorship of sport by tobacco companies."—[Official Report, 21 February 1986; Vol. 92, c. 638.]

Planning Appeals

Mr. Sims: asked the Secretary of State for the Environment what guidance he gives to his inspectors as to the weight they should give to local representations in respect of planning appeals.

Mr. Tracey: In the light of the Department's published guidance on policy, it is for the inspector to decide, in each case, what weight should be given to matters about which representations are made to him.

Mr. Sims: Has my hon. Friend seen press reports suggesting that, in the past year or two, there has been a substantial increase in the proportion of appeals allowed by local inspectors? Certainly that is confirmed in the borough of Bromley, where, in 1983, 27 per cent. of the appeals were allowed. This year, so far, 46 per cent. of the appeals have been allowed. While I accept the desirability of some sort of appeals system, does my hon. Friend nevertheless not think that, generally speaking, local authorities are the best bodies to judge on planning matters and that to have their decisions overturned to this extent undermines the whole point of planning?

Mr. Tracey: The views of local people and local interests are always given considerable weight in planning matters. Sometimes the publicity given to planning matters gives an incorrect impression. In fact, 98·64 per cent. of local decisions stand.

Mr. Andrew MacKay: Is my hon. Friend aware that there is grave concern that in recent planning appeals insufficient weight has been given to local decisions and that his answers so far will not satisfy my constituents?

Mr. Tracey: I am well aware that my hon. Friend makes strong representations on behalf of his constituents in


Berkshire. Local planning authorities and inspectors must, by law, have regard to all material considerations. One of these is, of course, the representations of the local people.

Mr. Meadowcroft: Is there not a particular problem where a local authority is applying to itself for planning permission in relation to a large development, such as that at Leeds market, in that if it grants permission it disallows local opinion the possibility of objecting to the development thereafter? Why does the Minister not have more regard to calling in such applications rather than simply relying on the local authority to give planning permission to itself?

Mr. Tracey: I am well aware that this point was raised with the Select Committee on the Environment. We are considering the matter, but normally a call-in is applied by my right hon. Friend the Secretary of State in matters of overriding national or regional interest.

Acid Rain

Mr. Lord: asked the Secretary of State for the Environment whether he will make a statement on the results of his latest discussions about acid rain with his colleagues in the European Council of Environment Ministers.

Mr. Waldegrave: As the President of the Council, I tabled compromise proposals aimed at securing progress on acid rain. Sadly, some countres found our proposals too onerous for them.

Mr. Lord: Will my hon. Friend confirm that it is now not the United Kingdom that is hindering progress on this issue? Which countries are still dragging their feet?

Mr. Waldegrave: My hon. Friend is right. The Commissioner, Mr. Stanley Davis, made it clear after that Council meeting that Britain, as the presidency, had made genuine efforts to take matters forward. The countries that had most difficulty at the previous Council were Spain and the Republic of Ireland, but several other countries, such as Portugal, also face problems.

Mr. Chris Smith: Instead of always seeking compromise proposals which preserve Britain's status as one of the major world producers of sulphur dioxide pollutant, why do the Government not implement the recommendations of the report from the Select Committee on the Environment, which was produced more than two years ago?

Mr. Waldegrave: Because it is the judgment of the Government that to spend so much money in such a short time would produce no benefits worth the expenditure. The hon. Gentleman is a little out of date in constantly harping on about the problems, as he sees it, from the British Government's point of view. Some European countries, including the big polluting countries, such as Spain, have far greater problems.

Dr. David Clark: Will the Minister stop deluding himself into believing that Britain is no longer regarded as the bad neighbour of Europe when it comes to acidic emissions? Will he assure the House that the Government will press ahead with the commitment to retrofit three power stations, beginning next year?

Mr. Waldegrave: On the latter point, yes. On the former point, if Britain has a worse image than it deserves, which

is the truth, it is not a little because of our adversarial system of politics, whereby nearly half the Members here spend their time saying that everything done in this country is wrong.

Council House Sales

Mr. Knox: asked the Secretary of State for the Environment how many council houses have been sold to sitting tenants in England in each of the last three years.

Mr. John Patten: In the financial years 1983-84 to 1985-86 respectively, 117,000, 89,000 and 80,000 tenants bought their council homes. Since this Government came to power in 1979, nearly 750,000 council tenants have bought their homes in England. The figure for the entire country has passed 1 million and, this year, right-to-buy applications are running at the highest rate since they reached their peak in 1982–83.

Mr. Knox: What percentage of the council house stock has been sold to sitting tenants? What is my hon. Friend's assessment of the potential for future sales?

Mr. Patten: I am not very good at percentages, but 4·5 million council tenants are still living in council flats and houses. Of those, we estimate that about 500,000—perhaps 600,000—still have the resources to buy. Those people being encouraged to exercise their right to buy will take home ownership in Britain to about 75 per cent. by the year 2000.

Mr. Ashton: Why will the Minister not allow local councils to use the cash from home sales, especially in coalmining areas? British Coal will be selling 16,000 houses by auction and by tender in the next few months, almost all of which are inhabited by elderly tenants and pensioners who are too old to get mortgages and who could not take one on at their time of life. Many councils wish to buy those houses, and they have cash in the bank from the sale of council houses. Will he allow them to use that cash to buy those British Coal properties?

Mr. Patten: I realise the strong feelings on this issue and the anxieties in the coalfield communities about the sale of some of those houses. I am engaged in discussions with my right hon. Friend the Secretary of State for Energy and his colleagues in that Department and, through them, with British Coal.

Housing Grants

Mr. McCrindle: asked the Secretary of State for the Environment what steps he has taken to ensure that the range of grants aimed at repairing and maintaining houses is sufficient to preserve the housing stock.

Mr. Tracey: Yes, Sir. However, the repair and maintenance of housing is primarily the responsibility of the owners.

Mr. McCrindle: Does my hon. Friend accept that without an adequate range of grants some property owners will be unwilling or unable to maintain the standard of their properties? In those circumstances, and with a thought to the maintenance of the standard of the housing stock, will my hon. Friend take steps to ensure that the level and the number of grants are adequate in the national interest, as distinct from the interests of the individual owners?

Mr. Tracey: The Government are well aware of the value of grants available for improvement, repair work and loft installation. My hon. Friend will be interested to know that under this Government over £3,000 million has been spent on home improvement grants, 1 million grants have been given by local authorities since 1979, and 3 million grants have been given under the homes insulation scheme.

Mr. Rooker: Will the Minister confirm that the latest information available to his Department shows that there are over 501,000 dwellings that are fit but lacking basic amenities? Notwithstanding the massive amount of money that has been spent on home improvement, would it not

be possible for the Government to say to those 500,000 families, 400,000 of whom are in the private sector, that the fact that they lack a bath, hot and cold water or an inside toilet or washhand basin is an obscenity in the late 1980s? Should we not at least have a crash programme to offer people the installation of basic amenities within at least a couple of years?

Mr. Tracey: It is interesting to hear what the hon. Gentleman has to say, but I must point out that the public sector renovations this year are likely to be the highest since 1973, and the inside conditions of houses in this country are the highest in western Europe.

Foreign Affairs Council

The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): With permission, Mr. Speaker, I should like to make a statement on the meeting of the Foreign Affairs Council which I chaired in Brussels on the 15th and 16th of this month. My hon. Friend the Member for Wallasey (Mrs. Chalker) represented the United Kingdom.
Foreign Ministers confirmed the re-appointment for a further two-year term of the President of the Commission and the Vice-Presidents.
The Council noted that a solution had not yet been reached in the negotiations with the United States concerning the accession to the Community of Spain and Portugal. Ministers emphasised the need to reach a settlement as soon as possible, and confirmed the decision of the April and June Councils that in the event of unilateral United States action, the Community would take equivalent action to defend its interests.
The Council approved a negotiating mandate for a trade and economic co-operation agreement between the Community and Romania.
The Council expressed its concern about the considerable number of current trade problems with Canada, and invited the Commission to pursue these matters vigorously and firmly with Canada.
The Council discussed the guidelines for the 1987 Asia and Latin America aid programme, and an export stabilisation scheme for least developed countries not party to the Lomé Convention.
The Council discussed two important procedural consequences of the Single European Act concerning the powers of the Commission and the Council's own rules of procedure. I am glad to say that on the latter point, a satisfactory agreement was reached.
The Council also discussed social measures in the coal and steel industries, and held a conciliation meeting with a delegation from the European Parliament on the new regulation on food aid policy and management on which the Development Council agreed a common position on 11 November. The regulation, the United Kingdom presidency initiative, was then formally adopted.
An Association Council at ministerial level was held with Cyprus. Both sides agreed on the importance of bringing the current customs union negotiations to an early conclusion.

Mr. George Robertson: I thank the Foreign Secretary for making his statement at the end of the British presidency of the Community. At the end of June, the Foreign Secretary told journalists:
This is the last time I will appear before you as a mere Foreign Secretary. From now on I shall have added lustre".
Can he confirm that as December ends, we have the same old lack lustre Foreign Secretary back before us?
We welcome the resolute nature of the Council's response to American unilateralism on grain exports, although, to quote Commissioner De Clercq, the "unreasonable and undefensible" demands by the Americans are not simply being postponed, and the trade war with the United States still awaits. Like so many problems, has not this crisis simply been sidestepped under the British presidency and passed on to the Belgians to deal with next year?
It is worth remembering today what the Government's objective was during their presidency of the Community. In June the Foreign Secretary said that it was to make
a real contribution to the lives of ordinary people.
In this aim, as in so many others, we have seen a miserable failure, and nowhere has that failure been more marked than in foreign affairs. In July, a united political stance on apartheid was sabotaged by the spoiling tactics of this Government, which led to the feeble and half-baked stance that was eventually adopted against South Africa. Was that not the root cause of the paralysis in October in response to Syrian terrorism in Britain? Can the Foreign Secretary tell us of the reaction in the Foreign Affairs Council this week to Britian's high-minded and oft-repeated rhetoric about united action on terrorism, in the light of the increasing evidence of, first, our own arms-related exports to both Libya and Iran and, secondly, our acquiescence in the American arms fiasco over Iran? Did not our partners in the Community see through the brazen hypocrisy of the British Government demanding sanctions against these countries, as we simultaneously sell submarine syncro-lift machininery to Libya and send Chieftain tank parts and now £240 million-worth of military radar to Iran? Does this open bending of the Government's rules not debase our own position in uniting the Community against terrorist states?
Is there not something symbolically important in the fact that the European nations could not even agree on one candidate to put forward for the position of managing director of the International Monetary Fund, a position that is being voted upon today when the Governments of the world have to choose between two separate and distinct European candidates? The lustre that we had never noticed has gone from the Foreign Secretary. He, and we, will have to admit that his grand designs for the British presidency have produced precious little for the ordinary people of the Community. For that failure alone, his presidency will be memorable.

Sir Geoffrey Howe: I must say that the hon. Gentleman's intervention will itself be memorable for its almost total lack of connection with the subject under discussion. He has embarked upon a discussion of the sale of arms to Iran and Libya, neither of which was under discussion at the meeting of the Foreign Affairs Council, upon which I am reporting—

Mr. George Robertson: Why not?

Sir Geoffrey Howe: Because not one of my European colleagues dwells anywhere near the land filled with fantasy which the Opposition Front Bench occupies. The reality of co-operation on foreign affairs matters in Europe in the last six months has been more effective co-operation than ever before over the development, under British leadership of a policy against terrorism, and more effective co-operation than ever before over the development of a common policy in relation to drugs, terrorism and crime throughout Europe.
To turn to the point at which the hon. Gentleman entered the subject, he was kind enough to commence his otherwise somewhat rambling intervention by congratulating us upon the firmness with which the Community had faced up to the United States' trade negotiating policy. In relation to the successful launch of the GATT round, the reality is that the Community has


been firm under British leadership. On the solution of American-European Community trade disputes, throughout the early autumn the Community was firm under British leadership and effective agreements have been reached on steel, pasta and citrus fruits, for example. [Laughter.] Hon. Members may laugh, but the threat of United States action could destroy more than £500 million-worth of exports from the European Community, affecting such vital products as whisky, about which the hon. Gentleman may not be prepared to laugh so lightly. In all these respects the Community has taken firm action. I know that the right hon. Member for Leeds, East (Mr. Healey) is interested in the IMF post. I am sorry that we were not able to put forward his name, but two good candidates from Europe were put forward for a job in which the right hon. Gentleman has always had a powerful interest because it was one of his mentors during his tragic time as Chancellor of the Exchequer.

Mr. Denis Healey: There are two candidates for the rest to choose from.

Sir Geoffrey Howe: A most effective pattern of decisions was taken during the British presidency and that presidency set a record for decisions agreed and adopted on the internal market. We agreed on more help than at any time before for small businesses, on an action programme for employment, total co-operation on illegal immigration, visas, terrorism and crime. Yesterday, a series of decisions on the common agricultural policy went further than anyone could have imagined on the most fundamental reforms ever agreed to that policy. Those things were all undertaken under the British presidency during the second half of the year. The hon. Member for Hamilton (Mr. Robertson) should re-examine his assessment of these matters and be prepared to pay generous tribute to a dramatic series of successes.

Sir Anthony Kershaw: Is it not clear that, while agreements on things like citrus and the like may be a matter for mockery by the Opposition, they mean the difference between prosperity and poverty for the people who produce them? Is it not also clear that the hon. Member for Hamilton (Mr. Robertson) must have been talking about a different meeting? I congratulate my right hon. and learned Friend on the lustre that he has given to Europe during the last six months. The British presidency has laid the foundation for a Europe that works properly and which will be able to contribute to peace and prosperity throughout the world.

Sir Geoffrey Howe: I am grateful to my hon. Friend for his kind tribute and for underlining the realities that the work being undertaken by the Community is about the jobs of people in Britain and in Europe, about which the Opposition seem to care not at all.

Sir Russell Johnston: Will the Foreign Secretary enlarge on his rather delphic reference to the Single European Act? Who conceded what to whom, and to what effect? Can he tell us whether, in the last Council that he chaired, any advance consideration was given to the matter of a common electoral system for the European Parliament, given that the Political Committee of that Parliament has, as he knows, now reached an agreement? Does he agree that the existing electoral system in Britain is clearly unfair to the electors and distorts the position in the European Parliament? Can

we be sure that, even though we did not have a change by 1984, as the Home Secretary hoped we would, we will get one by 1989?

Sir Geoffrey Howe: I am sorry to disappoint the hon. Gentleman, but no suggestion was made by any member of the Council that the electoral rules, a matter dear to his heart, ought to be considered. The two matters discussed yesterday in connection with the Single European Act were the powers that are to be granted to the Commission to enable it to implement decisions taken by the Council. We also considered a proposal already considered by the House Scrutiny Committee, but not recommended here for debate, which will enable us to specify more clearly the way in which the Commission will exercise its powers to implement decisions. That was not brought to a conclusion, but we were able to agree changes in the Council rules of procedure which form the other part of the Single European Act.
Those changes do not affect the Luxembourg compromise or the basic provisions about whether or not a decision can be taken by unanimity or by majority, but they make it easier to take decisions where majority voting applies and enable the presidency to call a vote on its own initiative or when a majority of Council members are in favour of so doing. It was a considerable achievement to reach agreement on those important procedural changes.

Sir Ian Lloyd: I congratulate my right hon. and learned Friend on the determined and constructive resistance that he has offered to those who advocate protectionist solutions to the present problems that exist between Europe and the United States? Is it not necessary to remind those who advocate such solutions that the worst depression that the world has ever seen was the result of the reciprocal influence of the Hawley-Smoot tariff and imperial preference, whereas the most massive prosperity that the world has ever enjoyed has been the result of the enforcement of the General Agreement on Tariffs and Trade.

Sir Geoffrey Howe: I am grateful to my hon. Friend for drawing upon his formidable knowledge of these matters and reminding us of the central principles. It is right to say that the Commission, working jointly with the Council under our presidency, has stood robustly in favour of liberal trading agreements. For that reason, we have made clear our desire if possible to bring the article XXIV (6) negotiations with the United States to an early and agreed conclusion. But, in order to sustain the strength of our negotiating position, we have also agreed that, if unilateral measures are introduced by the United States, the Community will take equivalent action to defend its interests as already agreed. That is the right balance of robustness and pursuit of the right principles.

Mr. Reg Freeson: Considering that three of the world's six leading arms traders are Germany, France and Britain, and that that massive trade is a major cause of poverty, which was referred to earlier, as well as a cause of major leakage into terrorist hands of weapons of destruction, why was the international arms trade and the control and reduction of that trade not a subject of major discussion at the meeting?

Sir Geoffrey Howe: Because it was not on the agenda.

Mr. Freeson: Why not?

Mr. Ian Gow: Does my right hon. and learned Friend recall the journey which he made to Hillsborough on 15 November 1985 when the Irish Government committed themselves to accede as soon as possible to the European convention on the suppression of terrorism? How does my right hon. and learned Friend explain the decision of the Irish Minister of Justice yesterday that the Irish Government would not now be proceeding with the Bill to accede to the European convention on the suppression of terrorism?

Sir Geoffrey Howe: That matter was not on the agenda of the European Council yesterday, nor was it discussed in any other forum on that day. My hon. Friend must understand, because he attaches so much importance to it, the difficulty of securing the enactment of such matters in many legislatures around the world. The Irish Government have committed themselves to that objective, and it remains, no doubt, an important one.

Mr. John David Taylor: Can the EEC Ministers really be serious about a customs union between the Community and Cyprus or do they, in practice, simply mean a customs union between the Community and southern Cyprus? If not, how can there be a customs union with an island which is effectively divided by a customs barrier?

Sir Geoffrey Howe: The discussion that we had with the Cyprus Foreign Minister made it clear that we attach importance to the independence, sovereignty and unity of Cyprus. Our customs union is intended to be compatible with that. The policy so far pursued is consistent with article 5 of the association agreement, which states:
trade shall not give rise to discrimination between … nationals of Cyprus.
That remains the objective.

Mr. Tony Marlow: As the Community is committed to strong action against terrorism, what action has been taken to establish how Mr. Mordechai Vanunu was removed, first from London, and then, apparently, from Paris, against his will?

Sir Geoffrey Howe: That matter has not been raised within the Community. It was the subject of an Adjournment debate in the House about a fortnight ago.

Mr. Nigel Spearing: In view of the serious financial situation in the EEC, was next year's budget discussed or was it not on the agenda? Is there a danger and a likelihood of the 12th arrangement being adopted next year? In view of the Prime Minister's statement to the House last week, is it not now a fact that the only way in which we can protect our rebate mechanism is to pay subscriptions in excess of the 1·4 per cent. VAT formula?

Sir Geoffrey Howe: The budgetary position was a formidable part of the discussion to which the Agriculture Ministers were addressing themselves yesterday. We also discussed the way in which the Commission is likely to be producing its ex novo report for consideration by the Commission and the Council during the course of the next year. On the budget, the hon. Gentleman will know that the Council reached its conclusions within the maximum rate. So far, the Parliament has not reached the same conclusion. In those circumstances, the provisional 12th

arrangement is likely to apply in the immediate future. That is not an arrangement with which the United Kingdom has any difficulties.

Mr. Ivor Stanbrook: What progress has been achieved towards a common extradition policy with regard to terrorists in the European Community? After all, there are many terrorists in the Republic of Ireland who are wanted by the United Kingdom at this moment? If we cannot get any of them because of the obstinacy and refusal of the Irish Government to co-operate in this matter, what hope is there of getting a common European policy?

Sir Geoffrey Howe: My hon. Friend will recollect that, in a number of respects, there have been some remarkable successes in securing the extradition of criminals from a variety of Community countries during the past 12 months. There have also been agreements entered into between ourselves and Spain replacing a void that previously existed. In all those respects, matters are advancing. They would not be moving so fast were it not for the framework of European Community co-operation.

Mr. Tony Banks: One wonders what past Foreign Secretaries such as Palmerston, Halifax or Bevin would have made of a Foreign Secretary telling us about pasta, even with a lustrous topping. Aid for Latin America was on the agenda. Will the right hon. and learned Gentleman tell us what was decided about the level of aid for Nicaragua? In connection with terrorism, what statement was made or was intended to be made later, about the international terrorism of the United States, with their support for the Contras?

Sir Geoffrey Howe: The Council did not raise the last topic mentioned by the hon. Gentleman because it takes a different view from him. On the subject of aid, there was a discussion about the likely distribution of aid as between Third world countries and Latin American countries, but it was not possible to bring that to a conclusion yesterday.

Mr. Stefan Terlezki: I wish to congratulate my right hon. and learned Friend on his presidency of the European Community and on the fact that he has fought so vigorously on the subject of human rights in the Soviet Union. I should like to ask him most sincerely to continue fighting and speaking about human rights in the Soviet Union and the satellite states, so that the Soviet Union will recognise and implement the Helsinki human rights agreement.

Sir Geoffrey Howe: I am grateful to my hon. Friend. That matter is under discussion at the follow-up meeting of the Conference on Security and Co-operation in Europe and the countries of the Twelve are taking a strong and united position, precisely as my hon. Friend would wish.

Several Hon. Members: rose—

Mr. Speaker: Order. I shall endeavour to call before 4 o'clock all the hon. Members who are standing, so I ask them to be brief.

Mr. Tom Clarke: Does the agreement on steel to which the right hon. and learned Gentleman referred mean that we can expect quotas that will smother Ravenscraig in the same way as the present quotas led to the suffocation of Gartcosh?

Sir Geoffrey Howe: The agreement on steel that was arrived at during the negotiations in the late part of the


summer and early autumn secured the removal of threatened restrictions by the United States and the United States market as one of several restrictions which would have threatened severe damage to jobs throughout the Community.

Mr. Andrew Faulds: Does the right hon. and learned Gentleman appreciate that the House, with its charitable disposition, does not blame him too much for his lacklustre presidency because it realises that the Prime Minister is growing increasingly unpopular in Europe, for good reason? Specifically on the Hindawi case, does the right hon. and learned Gentleman not realise that there is a fallacy central to his argument in that there is now greater awareness, certainly among European leaders and probably among most European parliamentarians, that in the specific Hindawi case, it was a rigged situation which conned the British court because it was created by Mossad in co-operation with MI5?

Sir Geoffrey Howe: The hon. Gentleman strays a long way beyond the scope of any conceivable agenda. There is no evidence to support his approach to the matter.

Mr. Faulds: Every bit of evidence.

Sir Geoffrey Howe: The entire Community supported the action taken against the Syrian Government on the basis of evidence presented to the Community as a result of the decision of a British court.

Mr. Stuart Randall: Will the Foreign Secretary tell the House what the social measures for steel and coal mean for Britain?

Sir Geoffrey Howe: The social measures under discussion involved a transfer from the Community budget to the Coal and Steel Community budget which was not acceptable to the majority of countries taking part in the discussion, especially Britain. It would have involved a large distribution in favour of steel and little in the direction of coal. It has been decided that the Commission should give further consideration to these matters when it considers the improved co-ordination of structural funds, which is part of the agenda for the new year.

Mr. Tony Lloyd: The Foreign Secretary cannot face both ways on the issue of trade with the United States, claiming great success in terms of lemons and spaghetti while indulging in a little sabre-rattling in his statement about potential American action. Six months ago, when the right hon. and learned Gentleman began his presidency, he was optimistic about trade talks, and we now face the serious possibility of a trade war. Can he tell us what went wrong during his presidency?

Sir Geoffrey Howe: Nothing in that respect at all. We started the summer with three specific anxieties between the Community and the United States. The first was whether we should get the next GATT round going as a result of forthcoming talks at Punta del Este. We did so as a result of Britian's successful leadership of the Community delegation. The second was, should we resolve the then current disputes about pasta, lemons and steel, which when taken together were of importance to jobs in the European Community? The answer is that that dispute was resolved satisfactorily. Jobs in steel, about which Opposition Members were concerned, were safeguarded.
The third anxiety was, should we be able to bring to an end the dispute following the enlargement of the European

Community, with America claiming the right to impose discrimination against us? That dispute has not yet been resolved, but we have decided that it would be sensible to allow one further month for negotiation. As the hon. Gentleman says it is much better to avoid a trade war rather than run into one. If that is not possible, the Community is armed to take firm, robust measures against the United States on an exactly matching basis. That is the sensible way to conduct these matters.

Mr. Ernie Ross: Will the Foreign Secretary tell us in what activity Foreign Council Ministers have engaged in attempting to resolve the problem in the middle east, especially the Arab-Israeli conflict? Did they take any specific action following the use of live ammunition by the Israeli defence forces on the west bank in Gaza over the past few weeks? What progress has been made by the European Council of Ministers in gaining access for produce from the west bank in Gaza to the Common Market?

Sir Geoffrey Howe: The Arab-Israeli dispute has been addressed a number of times during our presidency. 1t is because of the importance of the subject that Britain initiated and put in place the policy for Community aid and Community trade access to be extended to the people of the west bank and those in Gaza. That is an important response to the issue raised by the hon. Gentleman and it arises directly from Britian'as initiative in the Community.
The use of live ammunition in incidents in Israel over the past week or so has been the subject of active consideration, in which Britain supported the relevant resolution at the United Nations together with all other Community Members on the Security Council.

Mr. Tam Dalyell: In response to my hon Friend the Member for Hamilton (Mr. Robertson), the Foreign Secretary talked of total co-operation on crime. Can he assure his European colleagues in the House that the complaints by Mr. Sandy Grant of break-ins to and fires at the premises of Heinemann in Australia have nothing to do with the British Government or British Government agencies?

Sir Geoffrey Howe: I cannot give any kind of assurance on that matter, about which the hon. Gentleman has given no notice.

Mr. David Winnick: I recognise what the Foreign Secretary has said about pasta, lemons and the rest of it, but why were the latest police state restrictions in South Africa not placed on the agenda? Does he not recognise that the latest restrictions demonstrate once again that there is no solution in South Africa while the present authorities remain in office? It is all the more unfortunate that the Foreign Secretary, despite what he says, is undoubtedly a party to appeasement in what is happening in South Africa.

Sir Geoffrey Howe: I do not accept the hon. Gentleman's view, which he presses upon the House at every opportunity. South Africa was discussed yesterday and the Twelve are planning to make high-level representations in Pretoria on human rights generally. We have already taken action on the part of the United Kingdom Government and made it plain, in words that will commend themselves to the hon. Gentleman, that


muzzling the press and locking up one's political opponents is not the answer to the problems of South Africa. Our position is absolutely clear.

Mr. Peter Pike: Does the right hon. and learned Gentleman not regret the fact that, during Britain's presidency of the European Council, it has been Britain that has held Europe back from taking more positive steps and from putting pressure on the South African Government to take this last opportunity to end apartheid by peaceful means? As the South African Government are moving, if anything, in the wrong direction, should not Britain's role be reviewed and even further pressure be exerted than that outlined a moment ago?

Sir Geoffrey Howe: The hon. Gentleman is wrong in his basic analysis. The countries that have, in the past few days, declined to put in place trade measures in relation to coal are Germany and Portugal. The United Kingdom, in line with the position that it adopted in London in August, would have been willing to accept those measures as part of the general Community package. We feel no sense of dismay in not having gone further down the road of sanctions, because all the evidence suggests that the consolidation of opinion behind the authoritarian measures being taken by the South African Government is the result of actions taken by the outside world rather than of the balance that we have tried to pursue. Therefore, there is no reason for me to be apologetic to the hon. Gentleman in that respect.

Mr. Dalyell: On a point of order, Mr. Speaker, arising directly on this statement. Courtesy is important in the

House. The Foreign Secretary said that he had been given no notice about Mr. Sandy Grant. However, I wrote to his office this morning —[Interruption.]

Mr. Speaker: Order. That is not a point of order for me.

Mr. George Foulkes: Have not the six months of the United Kingdom's presidency, which will go down in history as the pasta presidency, been an abject failure? As it is the President who sets the agenda for meetings, does not responsibility for avoiding all the major issues in the Community rest fairly and squarely on the Foreign Secretary's shoulders? At the end of his presidency, we have a growing trade war with the United States, institutions at loggerheads and the budget out of control. Even Jacques Delors, the President of the Commission, in his usual diplomatic way, describes it as disappointing. Does that not mean in reality that it has been disastrous?

Sir Geoffrey Howe: The hon. Gentleman can hardly be faulted for lack of originality. He has returned to the same point as the Opposition Front Bench started from. His remarks have no foundation. We have been successful in launching a new GATT round, in defusing the main trade dispute with the United States, in reforming the food aid programme, in uniting the Community against terrorism, in taking more measures to liberalise the internal market than any other presidency, in establishing the first wide-ranging action programme on unemployment and in ensuring the most important measure of CAP reform ever achieved. That is a presidency of formidable achievement, and it is only the hon. Gentleman who does not recognise that.

Agriculture Council

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. John Selwyn Gummer): With permission, I will make a statement on the outcome of the meeting in Brussels of the Council of Agriculture Ministers, which covered 90 hours of negotiations, including two all-night sessions, and ended yesterday afternoon. My right hon. Friend the Minister chaired this meeting and I represented the United Kingdom.
Important decisions were made which involved major reforms to the milk and beef sectors. On milk, the agreement will result in a reduction in production of 9·5 per cent. over the next two years. This is to be achieved first by the permanent reductions in milk quotas of 2 per cent. for 1987 and a further 1 per cent. in 1988 as agreed last April; secondly, by a temporary suspension of quota by 4 per cent. in 1987 and a further 1·5 per cent. in 1988; and finally by a further 1 per cent. reduction which results from a tightening up in the operation of the quota system. I insisted throughout the negotiations that the necessary reductions in production had to apply to all member states, and that was agreed.
Our aim will be to achieve as much of the permanent reduction as possible in the United Kingdom by the voluntary outgoers scheme. I am pleased to say that the maximum rate of Community compensation under the scheme will be increased by 50 per cent. from 2·6p per litre a year to 3·9p per litre a year over seven years.
Compensation from FEOGA for the temporary suspensions of quota will be paid at 6·5p per litre per year, and this rate is guaranteed for two years.
Changes are to be made next year in the arrangements for implementing the supplementary levy in order to make it more effective in discouraging production in excess of national quotas. We succeeded in our aim of retaining formula B and article 4a, which contribute to ensuring the flexible operation of the quota arrangements within the United Kingdom.
As part of the arrangement, changes are to be made in the intervention arrangements. They are designed to prevent excessive recourse to intervention, which has been noticeable in the Community particularly over the past year.
The Council took note of a Commission paper which sets out its plans for a major disposal of existing intervention stock, designed to reduce it to more manageable levels by 1989. The cost of this programme of disposals will be financed over the four years beginning in 1989.
On beef, the Council agreed substantial reforms in the intervention system. They are designed to reduce both the cost and the volume of intervention buying. They involve a reduction in the price levels at which intervention buying will operate. It will take place only when the average price in the Community is below 91 per cent. of the intervention price and when at the same time the average price in a particular member state or region is below 87 per cent. of the intervention price.
Alongside those changes in intervention, various premium arrangements were agreed. They include a new premium worth £16 per head payable on male animals only on specialised beef enterprises up to a limit of 50 head

per farm. This particular premium was totally unacceptable to the United Kingdom, and we shall not be applying it here. Instead we succeeded in retaining our existing variable premium arrangements on the existing terms, which are much more favourable. The maximum rate payable averages at about £45 per head and covers heifers as well as steers and young bulls. Moreover, the 50 head limit does not apply to it. In addition, the rate of Community funding for the suckler cow premium is being increased. It will be possible in 1987 to pay up to a maximum of £33 per head. The decision on the actual rate will be taken later.
Those changes to the beef system represent a major shift away from dependence on intervention towards a more market-oriented policy. This is in line with the approach which we have followed in the United Kingdom under our variable premium system. The beef arrangements have, moreover, been agreed until the end of 1988. They will therefore provide an important element of stability for beef producers during a period when the adjustments to milk production, and the effects of that on the beef market, will be felt.
In response to the request that we made last September, the Council agreed to devaluation in our green rate of 6 points for beef and 3·2 points for sheep. Those changes, which take effect on 5 January, will result in support prices in those two sectors being increased by around 5 per cent. and 1·5 per cent respectively. That will be worth an additional £50 million to farmers in a full year. The devaluation will also help towards restoring our meat traders' position relative to Ireland.
Other green rate devaluations were agreed at the same time: for France in the same two sectors; and for Greece. Portugal and Spain in the sheep sector alone. The Council broadly approved in outline a package of socio-structural measures and agreed that detailed decisions on them would be reached by the end of February.
One major aim of the arrangements is to help tackle the surplus problem. Member states will be required to offer aid for the extensification of production and conversion to non-surplus output, and also to operate an early retirement scheme for farmers who want to abandon production on their farms. These schemes will be able to cover afforestation as well as fallowing. Member states will have a wide measure of discretion on how they will be applied.
The measures will help the southern countries in the Community to restructure their farms. There is provision for Community-funded schemes for environmentally sensitive areas. This is, of course, an important concept which has been introduced into Community legislation as a result of the pressure from the United Kingdom, and in particular from my right hon. Friend the Minister.
The Commission originally proposed a limit on the financial contribution to compensatory allowances for livestock, which would have severely discriminated against some farmers in this country. I succeeded in securing a form of words in the final document that is acceptable to us and to them.
The changes, particularly in the milk sector, will, of course, cause serious problems of adjustment for many individual farmers, but they will be sizeably compensated. But the package agreed at the Council on milk and beef fits in well with the best interests of the United Kingdom industry. [Interruption.] Hon. Members who care about


the farming industry might listen to what comes next because it matters to farmers. In particular, the cut in milk production will be applied across the Community and we have retained flexibility in the system; we have kept the beef variable premium and an improved suckler cow premium; and we have secured the green rate changes, which will greatly benefit our livestock sector.
The Agriculture Council has, I believe, under the British presidency, taken an historic step forward in tackling the problems of surpluses, which will bring substantial savings to the Community budget. Twelve nations have together found the way forward in agriculture—despite differences so big that once they could have caused wars—[Laughter.] Is it not marvellous how Opposition Members will not give credit to the Common Market when it brings home the bacon? It is in the interests of all of us, farmers, consumers and taxpayers alike, that decisions have been taken that put the common agricultural policy on the right road for the future.

Mr. Brynmor John: I am grateful to the Minister of State for making his statement and, in particular, avoiding any temptation to go into hyperbole about what was achieved. However, the agreement is complicated and the House will want further clarification of what the right hon. Gentleman has just said.
I welcome the three points on which I believe both sides of the House were united in a recent debate on this subject. First is the retention of the B formula, which I presume will have its system of setting off deficits and surpluses unchanged. Second is the retention and extension of the beef variable premium. I am glad to see that other countries now appreciate the value of some such premium. I hope that, whatever standardisation occurs in future, we shall insist that the dual benefits to both the producer and the consumer are retained. Third is the improvement of the milk outgoers scheme. Will the Minister tell the House what thought has been given by the Council to the use of any outgoers money for entry into the beef or sheep sector?
On surpluses, the Minister has announced measures which, if they work, will represent a sizeable step towards reducing surpluses in one of the most notorious areas of surplus, the dairy sector. When does the right hon. Gentleman estimate that, with the benefit of the scheme, production and consumption will be matched? As no less than 5·5 per cent. out of the 9·5 per cent. saving is to be achieved by a two-year temporary set-aside scheme, what will happen to such production after the two years have elapsed? Does the land come back into dairy production, or will it be a permanent loss, based on what was originally a temporary basis?
Will the Minister confirm three points about the green pound? First, the effect of lower intervention prices for beef, even when the 6 per cent. devaluation is taken into account, is to lower beef intervention prices by 8 per cent. net, and United Kingdom farmers will not have the advantage of headage payments to set off against that. What effect will that have on the smaller specialist beef producer?
Secondly, will the 6 per cent. devaluation eliminate, rather than work towards restoring, the advantage that the Irish farmers had recently over their British counterparts, to avoid the incident that occurred recently in Wales?
Thirdly, with the United Kingdom and French devaluation for sheepmeat, is there a guarantee that our perfectly legitimate trade in lamb will not be disrupted by French farmers in future?
I revert to the dairy sector. It is clear that some producers will come out of the sector, and I should welcome the right hon. Gentleman's estimate of the number. However, the point was put to him forcibly, again by both sides of the House in the recent debate, that others will be forced out of that sector by the reduction—farm and creamery workers will be displaced by the structural change. Yet there is no word of them in the statement. And is there not yet time for the Government to secure a better deal for those who, unavoidably and through no fault of their own will find themselves without a job?
The chief area about which I am unhappy concerns the importance of not overstating what has been achieved. For example, even if the dairy problem is conquered, that is merely the most notorious of several surplus regimes. There is no mention of cereals in the agreement, for example. Tackling the problem on the basis of a bit at a time, as we have done in the Agriculture Council, does the Minister accept that in other sectors, most notably beef, if outgoers use their money to set up in that sector, by the killing of dairy cows, estimated at 1 million or more in Europe, they are depressing beef prices and building up the 600,000-tonne beef mountain?
Does the Minister further accept that a number of acres—[HON. MEMBERS: "Too long."] No! Conservative Members may be satisfied with the hype in the Daily Telegraph but the House is entitled to ask legitimate questions about the agreement. When we are chastised for not taking an interest in agriculture, let the farmers note that the impatient ones are Conservative Members who just want to hurry through the statement so that they can go to their social functions.
Does the Minister further accept that a number of acres—perhaps he will tell us how many—will be left idle by the disappearance of dairy herds? Will not the temptation be to put sheep on them, thus accelerating the time when sheepmeat moves into surplus? The right hon. Gentleman will know that many sheep farmers do not have the luxury of switching, and they need protection to be kept in the sheep farming. Will they get it? Chief, however, among the lessons is that the impetus now created must not be lost. The Agriculture Ministers must not let events back them against the wall before they act on the common agricultural policy. Once started, the House should now insist that we look comprehensively at the CAP so that the policy may be reformed thoroughly in all spheres.

Mr. Gummer: I am sure that the hon. Gentleman is right in his final words. However, he must agree that it would hardly be right to suggest that the agreement is doing things merely a bit at a time. There were those who suggested that we should stick with dairying. If we could manage to do that, it would be a huge achievement. Others said that we must concentrate on beef, and others said that we should content ourselves with the special work on the structures package, which was particularly helpful at the beginning of the set-aside scheme for cereals. That would pave the way for the others.
The fact is that Britain went for all three together. Most European countries thought that it was impossible, but we achieved it. This is the largest package that we have


achieved together. In recognition of what the hon. Gentleman rightly says, farming is indivisible, and if one does not make the changes across the board, one pushes some of the problems on to other sectors. But one cannot do more than what is humanly possible in the period available to deal with the matter. I am pleased that no one suggested that we should cover anything else in the marathon that we went through.
We must take the hon. Gentleman's point about impetus. I agree with him that it is important. One cannot overstate how important this part of it is. The agreement is important because it is a major change in the way in which the Community deals with agriculture. If we build on that, we can make a difference. However, the hon. Gentleman is right about the B formula. Its mechanism is unchanged. What has changed is that those who overproduce after the mechanism has operated will receive a considerably greater penalty. That must be sensible because otherwise it is not fair on those who keep within the production targets.
I am glad that the rest of the Community is to learn the benefits of premiums. I have always believed that, once one has a premium system, farmers will understand how successful it is and it will be much more difficult to get rid of it. That is why it has been resisted so stoutly by those who believe in intervention as the only system. If one deals with surpluses on the system that we have used, of course the hon. Gentleman is right. We have called the system a temporary cessation of the quota. However, I think that he will agree that it is likely that that amount will continue thereafter. We were not prepared to support a fixed amount of compensation, which would go on into the distance. It seemed to us that a digressive system was more sensible, because one's initial costs are particularly high as it is then that one is likely to be restricting the number of animals that one has.
I do believe in having a temporary system because we have to get other dairy producers in the world to reduce their production in a similar fashion so that the world dairy market returns to a sensible basis. We want to be in the business of exporting on a reasonable instead of a highly subsidised basis. That means that we must all make reductions. It is not fair to ask British and other European farmers to reduce their production if other countries do not do the same.
In relation to the green pound, we never sought a greater benefit than that which the Irish had been given through the reduction of their green punt. Britain does not believe in changes in the green pound between price-fixings. We were so angry about that decision because it was taken on behalf of one nation on grounds that clearly applied absolutely in the same way to the neighbouring nation. That is why we felt that it was wrong that it had been held up for so long. We still believe that this is a welcome, if late, decision. It will not remove all the advantage from Irish farmers because some of that arises from other currency movements not affected by the decision.
I have a real concern about the problems faced by creamery workers and I was part of the United Kingdom delegation that raised that point with the Commission. The Commissioners have still not given us an answer on how to consider the matter.

Sir Richard Body: Has my right hon. Friend made any estimates of how many dairy farmers in this country may have to go out of business as a result of the decision?

Mr. Gummer: That sort of estimate is difficult to calculate. The truth of the matter is that, when quotas came into operation, it was thought that more dairy farmers would have to go out of business than happens year by year. That turned out not to be the case. I do not believe that the changes will mean that dairy farmers will have to go out of business. We will give those who wish to go out of business the opportunity to do so and those who do not wish to do that will be properly compensated for the fact that they perform an important job in producing the nation's food and conserving the countryside.

Mr. Richard Livsey: Although I welcome the retention of beef variable premiums and the green pound devaluation, will the right hon. Gentleman press for further green pound devaluations at the next negotiations, which I regard as absolutely essential? What effect will the settlement have on the income of the average-sized dairy farm in the United Kingdom? What plans does he have should the market valuation of quota exceed the value set for the outgoers scheme? What will he do if that happens?

Mr. Gummer: It would not be proper now to decide what our arguments and balance should be within the price-fixing arrangements that have still to come. However, the hon. Gentleman will know that, in the past, the United Kingdom has secured proper changes in the green pound that must be balanced against the extra cost to the Community budget. There is a mix to achieve and we must consider other arrangements before we can make a decision.
With regard to dairy farmers income, there is no doubt that compensation for the cut in quota of the temporary scheme is such that it should replace the profit that would otherwise have come from producing that milk—and, indeed, should more than replace that profit. There is, in the package, sufficient to support British dairy farmers without producing a product that cannot be sold. Even those of us with large numbers of farming constituents know that farmers do not want to produce food that is destroyed or sold at impossibly low prices. They want to do a proper job. They want a restriction on the amount that they can produce rather than to continue packing it into butter and then destroying it at the end of the day.

Mr. Colin Shepherd: Does my right hon. Friend agree that eventually he will be commended by the agricultural industry for coming to terms with and forcing his colleagues in the Council to accept the underlying instability of agriculture?
Does my right hon. Friend accept that one sector of British agriculture that is feeling particularly squeezed and nervous is the small stock farmer in the hills? Can he spell out how that sector can be reassured by the negotiations in which he has been involved during the past week? Finally, can my right hon. Friend comment on the figures of a loss of £50 to £60 per head of beef animal that have been quoted in the national press?

Mr. Gummer: The reasons for the United Kingdom presidency being so determined that we should deal with


dairying and beef production together were exactly as my hon. Friend explained. It is impossible to exclude one from the other, as there is a knock-on effect on the number of cows in the market.
The package helps very considerably. First, there is more than 400 million ecu put aside to get further exports of beef as the cows come on to the market. That will reduce the number of cows in the market.
Secondly, the introduction of premium generally in Europe should have a lowering effect on the price of beef in the rest of Europe, which should be a direct help to consumers. That should mean greater consumption in Europe and a knock-on effect on stocks elsewhere.
The increase in suckler cow premium goes directly to the specialist beef producer. The retention of beef variable premium for this year and next means that the producer has real confidence to a point at which we would expect the major effect of extra beef coming to the market to be a reduction in price. There are no grounds whatsoever for the figures that have been circulating. It is impossible to calculate such figures. There is no way of estimating how the market will operate with the change in intervention. I am sorry that people take an excessively gloomy view when it is such an extremely good deal.

Mr. Eric Deakins: By how much will CAP expenditure be reduced in 1987 and 1988 as a result of the measures that have been taken? Will the temporary suspension of quotas automatically end after two years?

Mr. Gummer: The answer to the second part of the hon. Gentleman's question is no, they will not end automatically. The only thing that has been fixed for two years is the exact amount of compensation. The milk package will save the Community about £1,200 million over three years and the beef arrangements will save £120 million. That package has taken into account the extra money that is to be paid out.

Sir Hector Monro: I welcome this agreement. Few people thought it possible to achieve an agreement of such magnitude and importance in Europe, and all credit should go to my right hon. Friend. Is he aware that, in the light of surpluses, his agreements on milk, the green pound and the reduction in beef premium are very good indeed? Will the increase in suckler cow subsidies be adequate to increase incomes in the beef sector?

Mr. Gummer: There is no doubt that there is an argument that the suckler cow subsidy is the way in which we can most properly direct help to the specialist beef sector. I still believe that it is a reasonable increase, although it is certainly not as big as some would have liked. Taken with the other measures, the beef producer must accept that this is a much more satisfactory agreement than anyone would have thought possible. Those who read the comments of the National Farmers Union must understand that the agreement achieves very much more than the NFU expected and meets all of its priorities.

Dr. Roger Thomas: What advice has the Minister about diversification for all the ex-dairy farmers who will exist in south-west Wales in the next two or three years?

Mr. Gummer: I do not believe that there will be those ex-dairy farmers. The arrangements that have been produced mean that those who have to reduce quota will be very properly compensated for that reduction. It will be the same kind of contribution to their income as they might have expected elsewhere. The hon. Gentleman knows that I am on record as having proposed a whole range of examples of diversification to assist the part of the country about which both he and I care.

Mr. Eric Cockeram: Has my right hon. Friend considered paying part of the compensation under the outgoers scheme to landlords in view of their reversionary interest in the cancelled quota?

Mr. Gummer: The arrangements have been discussed and negotiated throughout Europe. I do not think that anyone regards the present structure as unreasonable. We have protected the landlords' capital interest in the arrangements for outgoers, but when there is a temporary cessation of this kind, we believe that the money should go to the people who actually suffer the cut in milk production.

Mr. John David Taylor: As the net result of the arrangements announced by the Minister will be terrifying for farmers in the United Kingdom and will lead to a reduction in farm incomes, more bankruptcies and certainly more unemployment in rural areas, how can the Minister defend a policy that sacrifices British farmers because of surpluses produced in other countries?

Mr. Gummer: The hon. Gentleman has got it entirely wrong. This country put the second largest amount of butter—98,000 tonnes—into intervention last year, so it is quite wrong to suggest that we should not share the burden of surpluses. We have achieved a fair deal across the board. The hon. Gentleman would do the Province more good by fighting for the package rather than attacking it.

Sir Paul Hawkins: Only hours before the settlement was reached, I was with Sir Henry Plumb and the president of the National Farmers Union, who had never believed that such a good settlement could be obtained. I congratulate my right hon. Friend and the Minister on their stamina and on the tremendous success of the presidency, which I hope will be promulgated throughout the country. People in Great Britain are always denigrating their own country. The agreement is a whole-hearted success for both consumer and producer. Will my right hon. Friend ensure that the true story is put over to the British people?

Mr. Gummer: I am sure that it will help a great deal to know that my hon. Friend, with his long experience of farming, shares our view that the settlement is a good one. Sir Henry Plumb, who is certainly a good judge, regards it as a success that no one could have expected. The way to inform the people of this country is to give them just the facts rather than the scare stories being put about by people who have no interest in the future of agriculture.

Mrs. Gwyneth Dunwoody: How does the Minister intend to convince creamery workers who are to lose their jobs in January that this is a good package? How can he simply say that the Commission has not given a reply? When will he do something for people who are losing their employment now?

Mr. Gummer: There is a real problem when people are producing something that no one wants to buy. It may therefore be necessary to reduce the number of creameries. Sometimes the reason is simply that they are out of date and need replacement. The arrangements for workers who are made redundant are more generous than the national scheme. The hon. Lady knows that I take an interest in this, and I shall continue to do so.

Mr. Robin Maxwell-Hyslop: Will my hon. Friend, representing the Government rather than just his own Department, see that creamery workers who are made redundant by these quota arrangements receive the same sort of redundancy payments that steel workers received when they were made redundant owing to steel quotas imposed by the EEC? Secondly, will Britain be paying next year the optional 1·6p per litre on 4 per cent of the quota reduction or will she not?

Mr. Gummer: The arrangements as to the optional matters—those that are national decisions—are made by the Government as a whole. There has not yet been time for the Government to reflect on the matter and to make a decision. No doubt my hon. Friend will be among the first to know when the decision has been made. As for the creamery workers, my hon. Friend is quite right that comparisons could be made with the steel industry, but comparisons could also be made with the textile industry, in which no extra help was given. The answer that I gave to the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) is as far as I can go at present.

Mr. Robert Maclennan: Does the Minister accept that this extensive and major package shows that common agricultural policy techniques are more variable than opponents of the policy sometimes suggest? To enable us to take a more balanced view of the impact of the package on those affected by it, will the Minister be a little more specific about the milk quota compensation arrangements and say whether he believes that they will be equivalent to less or more than the value of the quota? Secondly, how do the Government intend to exercise their discretion with regard to the socio-economic structural package? In particular, what order of magnitude do the Goverment have in mind for the cash to be made available under the scheme for farmers cutting their farming commitment?

Mr. Gummer: The hon. Gentleman is right to draw attention to the socio-economic package which, despite its unfortunate name, contains some important measures aimed at the poorest farmers, not just in southern Europe but in the Highlands, in Wales and in other difficult areas of this country. We have not yet reached the stage of detailed discussions about the money that will be available. One reason for that was simply time. We made the essential political decisions, so there is clear guidance as to what the package will contain. We hope that the package itself will be worked out before the end of February. This is a major change and I shall certainly ensure that our policies and principles, which were partly behind the Agriculture Act which introduced the environmentally sensitive areas and other elements, will be shot through the scheme. Much of the pressure for it has come through new ideas from the United Kingdom, which is taking the lead in farm diversification.
As for dairy farmers' income, it is much more difficult to measure this according to the value of quotas, because

the figures given for the value of quotas vary considerably. However, the pence per litre compensation for the reduction in quota in the temporary cessation system is rather more than the profit that the farmer could expect to make if he produced that litre of liquid milk, so the arrangements defend the farmer's income.

Mrs. Elaine Kellett-Bowman: is my right hon. Friend aware that my farmers will be especially pleased at the retention of the beef variable premium for two years and the intention to try for the 6 per cent. devaluation of the green pound, which our right hon. Friend the Minister announced in my constituency on 29 September? Does my right hon. Friend agree that, taken together, these measures will go a long way towards restoring the stability of the beef market which has been lacking in our part of the world in recent months?

Mr. Gummer: My hon. Friend has not allowed the Ministry to forget the needs of her beef farmers and I am sure that she is very pleased at the success of the policy that she has supported.

Mr. Dennis Skinner: Is the Minister aware that some Tory newspapers today have forecast that, as a result of this great marathon success story, which has turned out a little flat the more questions the Minister has answered about it, beef and milk prices will fall? When does the Minister expect those prices to fall, and by how much?

Mr. Gummer: I think that the hon. Gentleman is probably wrong in his assessment of the way in which the package has turned out the more people have learned about it. I believe that as people have learned more about it they have found it more satisfactory than they had thought. I cannot be responsible for statements in newspapers, but it is certainly true that in most EEC countries which did not previously have the premium the price of beef will fall because the premium will have that effect. We already had the premium. That is why beef prices in this country are lower than in the rest of Europe anyway.

Mr. Richard Shepherd: Following these negotiations, will the common agricultural policy cost less in 1987 than in 1986?

Mr. Gummer: As I have said, the cost of the agricultural part of the CAP will be substantially reduced in successive years as a result of the negotiations.

Mr. Dafydd Wigley: Is the right hon. Gentleman aware that a recent survey showed that, in west Wales, one in four dairy farmers are teetering on the brink of bankruptcy and that this package will only make their worries even worse because their responsibilities are long term and the two years will not be enough to bail them out? When the United Kingdom is importing substantial quantities of dairy products, they cannot understand the Minister selling them down the river in this way.

Mr. Gummer: I am sorry, but the hon. Gentleman cannot say that with any truth. We import Danish and New Zealand butter, for example, because the British housewife wants to buy those butters and chooses not to buy British butter. New Zealand and Denmark have access to our market but we do not guarantee them a market. I believe that the British housewife ought to have a choice. I hope that the hon. Gentleman is not suggesting that


Welsh housewives should be forced to buy Welsh butter. I think that Welsh butter is extremely good and always buy it when I do not buy English butter. The hon. Gentleman cannot complain about Britain taking some of the cost of reducing—

Mr. Wigley: You should tell my farmers that.

Mr. Gummer: I would tell them that, because I would tell them the truth. If the hon. Gentleman does not tell them that, he will not be telling them the truth.

Mr. Patrick McLoughlin: My right hon. Friend is right when he says that farmers do not like money to be spent on food that is being put into intervention. What reassurance can he give small dairy farmers in the 200,000–litre category today, who will be especially hard hit by any reduction in quota? Has his attention been drawn to early-day motion 310, which deals with that point?

Mr. Gummer: I hope that we have met my hon. Friend's reasonable concern for the small dairy farmer. The compensation for suspension will be paid at the rate of 6·5p per litre per year, whereas the average profit on milk is between 3p and 4p per litre. That will mean that there is a margin to cover the increase in cost which arises when there is a lower throughput. It is about the right amount to ensure that my hon. Friend's dairy farmers have some guaranteed support for their income, which is especially necessary in his part of the world, where dairying is perhaps the only thing which farmers can do effectively. That is true of other areas, but it is especially true of my hon. Friend's constituency, which I have known well.

Mr. James Lamond: Although we must all be grateful to the Minister for his efforts to prevent another war in Europe by these negotiations, even if he murdered the English language to tell us about it, why has he mentioned the consumer so little today? Can the consumer look forward, now that there is such a large surplus of dairy products, to an early reduction in the price of milk, rather than the continual increases that they have experienced—or has the law of supply and demand been completely repealed in favour of farming?

Mr. Gummer: The hon. Gentleman ought to remember that the rise in food prices under the present Government has been less than the average rise in inflation. That is noticeably different from what happened when Labour were in government, when food prices rose very much faster. The hon. Gentleman might remember that, as he is a member of the Labour party, he should be on the side of those who do a good day's work getting a reasonable return for their Work. I am anxious to support farmers to ensure that they have a reasonable living.
We have always fought for changes in the system which are directed at the consumer. Therefore, we have the beef variable premium for a further two years, which is of direct help to the consumer. We also have a premium throughout Europe which is of direct help to European consumers. The Government have supported such policies, which favour the consumer directly. As for dairy products, almost every consumer in Britain is a taxpayer, whether directly or indirectly, and the fact that the tax bill will be so hugely changed must affect all consumers.

Mr. Alexander Pollock: I congratulate my right hon. Friend, and especially welcome the devaluation of the green pound, which will improve the trading climate for beef, not least in relation to the unfair Irish price differential. I urge my right hon. Friend to keep the slaughter premium at a realistic price to ensure that there is continuity of confidence in the beef sector, especially when there is an added threat in the shape of the cull of the national dairy herd.

Mr. Gummer: I am sure that my hon. Friend is right. The beef producer will not have the easiest time for the next two years while the dairy herd contracts. Thereafter, as he knows, the indications are that the beef market will become much more stable as supply and demand come much more into line. The Government have tried to be careful with the needs of beef farmers during the next two years.

Mr. David Penhaligon: Will the Minister confirm that, even when we include New Zealand in our production levels, Britain is no more than just in surplus in dairy products? We consume as much dairy produce as we produce. Can the Minister therefore explain to the counties of Devon and Cornwall which have today seen one tenth of one of their prime industries close down why the height of the Ministry's ambition was to cut our production by the same percentage as that by which other countries are in phenomenal surplus? What intentions, if any, does he have to skew this arrangement to the advantage of small farmers? That is within his power if he chooses to do it, but he has not mentioned it so far.

Mr. Gummer: The hon. Gentleman, who is, after all, a member of a party which supports our membership of the European Community, ought to remember that these arrangements are made fairly across the whole of Europe. We are all taking the same burden. Last year, we put 98,000 tonnes of butter into intervention. We imported considerably less than that—

Mr. Nicholas Winterton: No, we did not. We imported 135,000 tonnes.

Mr. Gummer: My hon. Friend need not be too upset, because, if I have got the figures wrong, I shall apologise to him. There is no need to be upset about it.

Mr. Skinner: You are just a wart on Thatcher's nose.

Mr. Gummer: The hon. Gentleman made that joke last week and it was not funny then.

Mr. Skinner: It will be in Hansard now. I have been trying to get it in for two months.

Mr. Speaker: Order. I did not call the hon. Member for Macclesfield (Mr. Winterton).

Mr. Gummer: It is quite impossible to ask the rest of the Community that we should take a smaller cut while we are costing the whole Community the price of putting 98,000 tonnes of butter into intervention. The hon. Gentleman must tell his constituents that as well.

Several Hon. Members: rose—

Mr. Speaker: I will now call Mr. Winterton.

Mr. Winterton: My right hon. Friend is aware that I have strongly opposed and deplored the way in which the Government have treated British dairy farmers, bearing in


mind the fact that they do not contribute year in, year out, to the surplus in Europe of liquid milk or dairy products. We imported 135,000 tonnes of dairy products last year. We are a net importer. Does my right hon. Friend accept from me, as a critic of the Government, that I warmly support the package that he has announced today? It is far better than could ever have been expected by me, as a strong opponent of the Government on dairy matters.
Does my right hon. Friend agree that he does his cause no good by giving the type of abrasive answer that he gave the right hon. Member for Strangford (Mr. Taylor)? Will he direct his attention to perhaps the most important thing in agriculture today—how the small dairy farmers of Macclesfield, east Cheshire, west Derbyshire and north Staffordshire are to look to their future? In what way, will the Government advise, should farmers and others in agriculture manage and fund land which, to date, has been funded by producing food, but which will in future not be used for that purpose because dairy products and liquid milk, which are their only products, can no longer be produced?

Mr. Gummer: I must say to my hon. Friend that it is not the Government who have imported those milk products; it is the housewife who has chosen to buy them. We in the agriculture industry must accept that, if we are to compete, we must enable people to want to buy our products. So long as we cost the whole Community large sums through intervention butter and considerable over-production of cereal products compared with our needs—

Mr. Penhaligon: Ah.

Mr. Gummer: —we cannot suggest that we should be excluded from fair cuts across the board in milk products. We are putting milk products into intervention.
I hope that my hon. Friend will agree that when one makes any announcement on agriculture, part of the House says, "Why on earth should farmers receive this help?", and another part says, "Should not the farmers have some more?". Therefore, my hon. Friend should say to his farmers, "We have tried to create more confidence in the market by ensuring that there are long-term dates so that people know of even a temporary cessation over two years and, again, there is a beef variable premium over two years. We have gradually enabled future planning, so that people can make their decisions." He can tell his farmers that every one of them will be compensated for the compulsory cuts and that that is more than they could have expected to gain in profit on the pints of milk that they produce.
In the long term, this is the only European Government who are taking as a basic part of their policy a programme of set-aside. That will enable us to bring production more closely into line with demand, if we can do it on a European basis.

Mr. Tony Banks: Does the Minister recall that, when Opposition Members have suggested that the beef and butter mountains should be distributed free to our pensioners, we have been told that, because of the arrangements, it would merely result in more beef and butter being brought into intervention? Since we understand that "vigorous" steps will be taken to reduce the intervention stores, is it not time for the Government to say that, if the new system will work, beef

and butter stores will now be given free to our pensioners? What better time to announce that than immediately before Christmas?

Mr. Gummer: The hon. Gentleman must accept that he would not want us to distribute a good deal of the butter in intervention to our pensioners because it has been in intervention for a long time. If we distributed the butter that he might wish us to distribute, those who normally buy butter would not buy butter. It is no good pretending otherwise, because we had a Christmas butter scheme which showed that.
Therefore, the butter that those people would have bought will go into intervention. We would spend large sums spreading free butter round the country and taking more butter into intervention in its place. That is not sensible. If we could find a way of increasing the market for butter and of helping the least advantaged, we would follow it. I am committed to that, but I have not yet found a way of doing it.

Several Hon. Members: rose—

Mr. Speaker: Order. I shall call those hon. Members who have been standing, but I ask for brief questions.

Mr. Andy Stewart: There is much to be commended in my right hon. Friend's statement. However, the beef package is causing grave concern among beef producers, especially as informed sources are saying that it will cost about £50 per head in reduced subsidies. That is because wholesale butchers have based their bidding price on the present intervention price. If that is reduced by 13 per cent., it will reduce the subsidies by the sum I mentioned. If that fear is founded, will my right hon. Friend take steps to correct it?

Mr. Gummer: My hon. Friend should accept that those figures cannot reasonably be held in the circumstances of our action. They do not take into account our action to stop the full effect of the calf and dairy cows coming on to the market. Nor do they take properly into account the effect of the continuation of the various premiums. Moreover, with the growing firmness of the beef market, we shall be able to see that beef producers pass through these two years more effectively than they suggest. But none of us can be sure, and I am not suggesting that the position will not be tougher than we anticipate.
With this package we have addressed ourselves to the problem in a way which we think will be successful, but obviously we shall keep a close eye on its effect on beef farmers.

Mr. Michael Fallon: May I welcome what is obviously a significant step down a long road? Has there been an improvement in the arrangements for securing and policing quota compliance by other member states?

Mr. Gummer: My hon. Friend is right that there is no point in having quotas if we do not ensure that they are adhered to. Several things happened during the discussions which have ensured that that will happen. By the changes and tightening in the arrangements for formulas A and B and their supervision by the Community, countries which have not been as tough on quotas as others—others have been as good as we have been on that—will find it much more difficult to evade the rules.

Mr. Robert Hicks: Has my right hon. Friend made any assessment of the impact that


the introduction of these measures will have on the structure of the countryside, given that farm incomes form the basis of the economic and social well-being of rural areas?

Mr. Gummer: My hon. Friend has put his finger on the area with which we are most concerned. That impact is the reason why we insisted on proceeding as far as we could with the structural measures in the Community discussions. There were those at home who suggested that Britain should be concerned only with beef and dairy, but we felt that it was right also to deal with the structures measure. My hon. Friend is right—that, as the production ability of British and European farmers increases, so the amount of land needed for food decreases. The whole structure of the countryside, dependent as it is on agriculture incomes, becomes much more fragile. Therefore, we are anxious to accompany these measures with changes such as we have often outlined previously, especially in the set-aside area, which will enable us to ensure that there is a proper basis for a thriving rural economy.

Mr. Nicholas Budgen: Will my right hon. Friend be generous with the truth in describing the reduction in the cost of the CAP? If he is right, as he hopes us to understand, there will be no need for any increase in contribution from VAT—

Mr. Teddy Taylor: No supplementary budget.

Mr. Budgen: —and no supplementary budget to the EEC. If, however, we have misunderstood my right hon. Friend's words, we shall be deeply disappointed in future.

Mr. Gummer: My hon. Friend knows that I am careful never to be economic with the truth. [Interruption.] Therefore, I have given him the exact figures. They are that the changes in dairying will mean a reduction in the budget of £1,200 million over the next three years and in beef of £120 million. We have not finished yet. First, the continuing effect of that will be even greater savings and, secondly, the United Kingdom Government are determined now to reduce the cost in other areas.

Mr. David Heathcoat-Amory: I congratulate my right hon. Friend on this first stage in the reform programme. The overall package will be welcomed generally in Somerset, which is the second biggest milk county. The farming community recognises that the continuing surpluses are doing great damage to the image of British farming and are a monstrous imposition on European taxpayers. Will he give an assurance that the changes in the milk regime will be enforced equally throughout the Community? There has been evidence that in the past the West German Government have allocated more milk quota than was allowed under the rules.

Mr. Gummer: I am sure that my hon. Friend is perfectly right about that. That is why I resisted strongly the West

German Government's proposal to change the rules about the suspension of quota and the operation of formulas A and B, which could have legitimised a practice that is clearly illegitimate. We stopped that, with the help of our other Community partners.

Mr. Teddy Taylor: As, sadly, previous Common Market agreements have not always worked exactly as planned, will my hon. Friend publish in the Official Report before Christmas the detailed figures showing how, despite the additional subsidies, pensions and premiums, the planned CAP spending will be cut by £1,200 million in 1987? Does national flexibility on disposal, which he mentioned, mean that there will be any transfer of the cash responsibility for disposal froth the Common Market to national Governments? Does he not think that it is an appropriate time to publish a report showing what went wrong with the previous quota scheme, which was designed to curb mountains and spending but actually increased both?

Mr. Gummer: The previous quota scheme was never sufficient to solve the problem and it was not sufficient to solve the problem of the growing ability to produce. We have two problems. One is the amount that we can produce at present and the other is a tendency to increase productivity and for the population to decrease its consumption of milk products. These two problems work in opposite directions from the aims of the quota. That is why I am so keen about the very large change that we have made, although it has hurt many of my hon. Friends' constituencies. It would have been much better and much easier if we could have made the change over a longer period. The British Government have always been opposed to the fact that we did not make these decisions earlier and more forcefully, when they would have been more to the benefit of the farmer.
I shall be happy to publish clear breakdowns of the figures, which my hon. Friend can then work over.

Mr. Tony Marlow: Given all the difficulties that my right hon. Friend has faced, may I unreservedly congratulate him on courageously and effectively grasping some particularly awkward nettles? Could my right hon. Friend tell the House that, after the cutbacks in milk, we will still be secure in our liquid milk market?

Mr. Gummer: My hon. Friend is most kind to make those comments, because I know that he perhaps starts considering these matters from a different angle from me. The liquid milk production is as important to his non-farming constituents as to the farmers who produce it. Liquid milk production is easily covered by the large amount of butter that goes into intervention. Even if all the milk came out of butter production, there would still be more butter going into intervention unless we could improve our proportion of the market. I am keen that we should sell more of our butter and cheese on the British market against foreign competition.

Airborne Early Warning System

Mr. Frank Cook: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the imminent award by this Government of defence procurement contracts for an airborne early warning system, probably to a foreign supplier, the possible acquisition of the entire British technological alternative package by a European competitor and the consequent forfeiture of export market potential of national economic benefit.
The matter is specific in that it relates to two possible options. One is British, custom-made to Ministry of Defence requirements and modified at ever-increasing cost to the taxpayer as the prospective purchasers upgraded their demands and specifications. The other option is American. It is admittedly a comprehensive system, but it is much more expensive. It is available almost off the shelf. It could have been purchased more than five years ago and it could have provided us with an early warning system much earlier if the need had been as pressing as the Prime Minister would now have us believe—so pressing that we may squander the fruit of British brain power before Christmas.
The matter is important in that the level of taxpayers' investment in this project—a project specific to changing Ministry of Defence requirements—has been colossal. That investment may now prove a loss to Britain and, ironically, a major gain to France. We know that French representatives have been present at all recent technical evaluations of Nimrod at the invitation of the Ministry of Defence. Could it be that the French investor might acquire the GEC package lock, stock and barrel, so reaping the fruit of our investment and probably cornering the considerable export potential that is available?
The matter is urgent, and needs urgent attention, as it is generally thought that a statement on the Government's decision may be made tomorrow. A debate after that announcement would be little more than a self-indulgent display of emasculating exhibitionism. This House must be afforded the opportunity to debate the issues in full before the decision is finalised, rather than afterwards. The House must be allowed to express a view and then vote upon the issue. I appeal to you, Mr. Speaker, to put the matter to the House this afternoon.

Mr. Speaker: The hon. Gentleman asks leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
the imminent award by this Government of defence procurement contracts for an airborne early warning system, probably to a foreign supplier, the possible acquisition of the entire British technological alternative package by a European competitor and the consequent forfeiture of export market potential of national economic benefit.
I have listened with care to what the hon. Gentleman said, as I listened yesterday to the submission by the right hon. Member for Llanelli (Mr. Davies). I regret that I have to give him the same answer as I gave yesterday. I am bound by the criteria laid down under Standing Order No. 20 and I cannot, therefore, submit his application to the House.

Wright Case (Court Proceedings)

Mr. Tony Marlow: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the difficulties encountered by those responsible for stating the Government's position in proceedings in the Wright case.
You will have heard this morning, Mr. Speaker, that Mr. Malcolm Turnbull, an Australian lawyer, has been making scurrilous allegations against distinguished British public servants. That will not surprise you, Mr. Speaker, as Mr. Turnbull is partisan, and as he has a reputation for brash arrogance and as a publicity monger.
What will have surprised and, I imagine, appalled you, Mr. Speaker, is Mr. Turnbull's assertion that the successful pursuit of his case against the British Crown was dependent upon actions by the Leader of the Opposition in this House. In other words, the Leader of the Opposition was creating difficulties for the Crown by using, or more accurately abusing, the procedures of this House for the benefit of Mr. Turnbull. We know that the Leader of the Opposition is naive and inexperienced. What we did not know until today was the extent of his involvement in this case.
In his letter to you, the right hon. Gentleman spoke of several telephone calls, the last five of which came from Australia. The most likely construction that can now be placed on those last exchanges is that the right hon. Gentleman, a Privy Councillor, was receiving his instructions which, if carried out, would—and some may say did—create difficulties for the Crown. No man should be condemned unheard. It is only fair to the right hon. Gentleman that there should be an immediate debate so that the difficulties faced by the Crown's representatives, and the role of the Leader of the Opposition in those difficulties, can be speedily and closely investigated.

Mr. Speaker: The hon. Member asked leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
the difficulties encountered by those responsible for stating the Government's position in proceedings in the Wright case.
I have listened to what the hon. Gentleman said, but I regret that I do not consider that the matter that he has raised is appropriate for discussion under Standing Order No. 20 and I cannot, therefore, submit his application to the House.

Mr. Neil Kinnock: On a point of order, Mr. Speaker. Reference has just been made to me by a Conservative Member. Were it not for the fact that he is one of the most contemptible Members in the House I would be asking you simply to treat his remarks as being as stupid as they are scurrilous, but I take this opportunity to say that he would not dare, in any shape or form, to accuse me outside this place of taking orders from anyone about anything. It is only the protection of this place that affords him the opportunity to be both ridiculous and—if I may use the phrase—extremely ungentlemanly, as well as lacking any form of courage.

Later—

Mr. Richard Hickmet: On a point of order, Mr. Speaker, and further to the point of order raised by the right hon. Member for Islwyn (Mr. Kinnock). Would you rule whether it is in order for one hon. Member to call another "contemptible"? If that is the language that is to be tolerated in this place—

Mr. Speaker: Order. It is a word that I have heard used frequently in this place. May I say to the whole House that it is very important that we treat each other with civility.

Mr. Willie W. Hamilton: Further to that point of order, Mr. Speaker. I draw your attention to an early edition of The London Evening Standard, referring to Mr. Turnbull in Australia.

Mr. Speaker: Is there a point of order in this for me?

Mr. Hamilton: Yes, certainly. There are scurrilous words in Mr. Turnbull's remarks implying perfidy and treachery in this House and in the Government. He says:
Sir Robert"—
the head of our Civil Service—
is the classical fall guy"—

Mr. Speaker: Order. Will the hon. Gentleman come immediately to his point of order for me? I am not responsible for anything that Mr. Turnbull may have said.

Mr. Hamilton: During his speech to the court Mr. Turnbull has accused the head of the British Civil Service, the Attorney-General and the Prime Minister of lying. That is a very serious charge, and we are anxious to preserve the integrity of those right hon. Members—

Mr. Speaker: Order. The hon. Gentleman knows that Mr. Turnbull did not do that in this place. I am not responsible for anything that is said to an Australian court. Will he come immediately to the point of order for me? He has been here for a very long time and he knows the rules.

Mr. Hamilton: You preceded me by a few seconds, Mr. Speaker. The integrity of the House and the Government is being challenged in that court. What can you do to protect that integrity from outside sources?

Mr. Speaker: I am responsible for the integrity of the statements by hon. Members inside this House. I cannot be responsible for everything that might be said about it outside.

Members' Telephone Calls

Mr. Tam Dalyell: On a point of order, Mr. Speaker. It will be within your recollection that, as reported in c. 1076 of Hansard for yesterday, you said that you would consider referring to the Privileges Committee a letter from a telephone engineer which I outlined in detail in my speech on the security debate and which was further referred to yesterday by my hon. Friend the Member for Warley, East (Mr. Faulds). Do you have any timetable in mind for action on your part?

Mr. Speaker: I told the hon. Member for Warley, East (Mr. Faulds) that I would consider any letter that came to me. It came to me only this morning and I am considering it.

Point of Order

Mr. Frank Cook: On a point of order, Mr. Speaker.

Mr. Speaker: I have just dealt with the hon. Gentleman's application under Standing Order No. 20.

Mr. Cook: It is a different point of order.

Mr. Speaker: I ask the hon. Gentleman to sit down.

BILL PRESENTED

PRIVATE SECURITY

Mr. Don Dixon, supported by Mr. Robert C. Brown, Mr. Giles Radice, Dr. John Cunningham, Miss Betty Boothroyd, Mr. Jack Ashley, Mr. A. E. P. Duffy, Mr. Gerald Kaufman, Mr. John Smith, Mr. George Robertson and Mr. Michael Cocks, presented a Bill to provide for and in connection with the regulation of the private security industry: And the same was read the First time; and ordered to be read a Second time upon Friday 20 February and to be printed. [Bill. 40].

Mr. Frank Cook: On a point of order, Mr. Speaker.

Mr. Speaker: I will take the point of order if it is my responsibility and if it does not refer to the hon. Gentleman's application under Standing Order No. 20.

Mr. Cook: I am most grateful to you, Sir. I must confess that I am genuinely at a loss. In no way do I challenge your ruling on my application under Standing Order No. 20, but I need your guidance.

Mr. Speaker: I do not think I can give it because, as the hon. Gentleman knows, I am bound under Standing Order No. 20 not to give reasons for my decision.

Mr. Cook: But I do not see the reason—

Mr. Speaker: Order. I am bound by the Standing Order. I cannot help the hon. Gentleman.

Mr. Cook: I need guidance, Sir.

Mr. Speaker: I cannot help the hon. Gentleman.

Orders of the Day — Autumn Statement

Mr. Speaker: I must announce to the House that I have selected the amendment on the Order Paper.

The Chancellor of the Exchequer (Mr. Nigel Lawson): I beg to move,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.
Before I begin my remarks, may I apologise to the House for the fact that, since this debate has started unnaturally late, I may have to leave the Chamber at a rather early stage in the proceedings for reasons which I have explained to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley).

Mr. Roy Hattersley: The Chancellor of the Exchequer will confirm, on reflection, that he was courteous enough to send me a message saying that he would be leaving the debate early long before anyone knew the time at which the debate would begin. But putting aside that little slip, will he take it from me that it is wholly unacceptable that when the House has on the agenda the principles of the Government's economic policy, for which he is wholly and personally responsible, and on which the Treasury and Civil Service Select Committee has adjudicated and in many particulars found the Chancellor wanting, he should not remain in the Chamber to hear the House's criticism of his conduct?

Mr. Lawson: As to the right hon. Gentleman's first point, I was well aware when my office telephoned his office that there would be an agriculture statement and that you, Mr. Speaker, would let that run for quite a long time because it was a very important statement and many right hon. and hon. Members would have wished to take part. But I have listened to what the right hon. Gentleman said. I have conflicting obligations. I will, of course, consider his request—

Mr. Hattersley: So that the apology, which I repeat is wholly unacceptable to the Opposition, might have a little more grace, will the Chancellor tell us whether he is now going to a meeting to validate the decision on AWAC which the Prime Minister announced yesterday afternoon?

Mr. Lawson: The right hon. Gentleman should know that that decision can be taken only by the Cabinet and that the Cabinet does not meet this afternoon.

Mr. Ian Wrigglesworth: On a point of order, Mr. Deputy Speaker. Is it not a fact that the call of the House to Ministers is paramount and must be heeded before any outside demands? Is not the Chancellor simply following his precedent in previous economic debates, when he has treated the House with contempt by listening to almost none of the speeches by hon. Members?

Mr. Deputy Speaker (Sir Paul Dean): Order. The hon. Gentleman knows that that is an expression of opinion. It is not a matter for the Chair.

Mr. Willie W. Hamilton: Further to that point of order, Mr. Deputy Speaker. The Chair is responsible for safeguarding the interests of Back-Bench Members in these matters. As the hon. Member for Stockton, South (Mr. Wrigglesworth) said, Ministers' first duty is to the House. Especially with such a major debate, the Chancellor should know that, whatever his commitments outside, the House must take priority. He has not yet explained to us which engagement is more important than listening to the debate. But whatever it is, the House is far more important. If he does not stop treating the House with contempt, the country will reserve its judgment on him. Will he now say that he is cancelling all outside appointments and devoting all his attention to the debate?

Mr. Lawson: I shall stay as long as I can, but I have to say that this is not assisted by the time-wasting tactics of certain hon. Members opposite.

Mr. David Winnick: Where is he going?

Mr. Lawson: I see that hon. Members are not the slightest bit interested in this debate or the economy, and that goes for right hon. Members, so I fail to see why they should make a fuss—[Interruption.]

Mr. Deputy Speaker: Order. I am sure the House wishes to hear the Chancellor.

Mr. Alan Williams: On a point of order, Mr. Deputy Speaker. As you will recollect, last Thursday the House approved the business programme for this week. That programme was drawn up by the Government's business managers after consultation with Ministers. They then presented to the House their programme for this week's debates, and many of my hon. Friends have come here so that the Chancellor can hear what they have to say in this most important debate.
Surely it is not enough for the Chancellor to make a last minute phone call, although he has known for a week when the debate was to be, to my right hon. Friend the Member for Birmimgham, Sparkbrook (Mr. Hattersley) to say, "I am sorry but I am going to slide out when I have said my bit." Surely he should make a full statement to the House about what has taken him away from his prime responsibility.

Mr. Deputy Speaker: That point has been made already. I hope that we can get on with the debate.

Several Hon. Members: rose—

Mr. Lawson: This is time wasting, and it is an abuse of the House and totally undermines every single point that the Opposition have sought to make—

Mr. Stuart Bell: On a point of order, Mr. Deputy Speaker. You will recall that some two years ago the Chancellor of the Exchequer was so late for the winding up speeches that he did not come in for them. This was drawn to the attention of Mr. Speaker, who issued a statement saying that it was the duty of the Ministers of the Crown to put the House before other commitments. That was written into Hansard. We are looking to you for reiteration of that statement, Mr. Deputy Speaker.

Mr. Deputy Speaker: The Chair has no control over the movements of Ministers. I hope, now hon. Members have expressed their view, that we can get on with the debate.

Mr. Tam Dalyell: Further to that point of order, Mr. Deputy Speaker. You have said that the Chair has no control over the movements of Ministers. It will be within your recollection that, faced with similar problems, Mr. Speaker Selwyn Lloyd issued what might generally be assumed as guidance to Ministers, stating that the needs and the requirements of the House of Commons were paramount. Is the attitude now being taken different from that of a distinguished Conservative former occupant of your Chair? Has there been a change of policy?

Mr. Deputy Speaker: The hon. Gentleman knows very well that Ministers must be judges in these matters.

Mr. Peter Shore: Further to that point of order, Mr. Deputy Speaker. The Chancellor is treating the House of Commons in an extremely unsatisfactory way. If the Chancellor cannot be brought to cancel his engagements and treat the House with the respect that it deserves, will you consider whether it would be possible to suspend the proceedings until the Chancellor is free to come back, face the House and attend the debate in the proper way?

Mr. Deputy Speaker: I say again that time is running out. The debate started late for reasons that we all understand. This is an important debate and I hope that we can get on with it.

Mr. Lawson: I have to say, Mr. Deputy Speaker, that I have learned one lesson from this farcical charade, that in future I shall not make the mistake of affording the right hon. Member for Sparkbrook the courtesy of giving him advance warning.

Mr. Hattersley: Has the Chancellor still not understood that his offence is not against me—that does not matter —but against the House? Until he understands that, he is not worthy to address the House this afternoon.

Mr. Lawson: I understand fully well that it is the House that comes first and that is why I began with an apology to the House, but I also understand that the right hon. Gentleman and hon. Members opposite are wasting the time of the House deliberately.

Several Hon. Members: rose—

Mr. Deputy Speaker: Order. I hope that we shall not have more points of order on the same point. I have already dealt with it and I suggest that it is in the interest of all of us to get on with the debate.

Mr. Laurie Pavitt: On a point of order, Mr. Deputy Speaker. The whole House has sympathy with Mr. Deputy Speaker when he faces a difficulty. However, I wish to make a suggestion based on precedent. As you can see, the House is a little turbulent. Perhaps Mr. Speaker could be sent for so that the rest of our proceedings can be orderly. I am not decrying your responsibility, Mr. Deputy Speaker. We know well the way that you conduct our business and have no criticism. However, this is a difficult situation. Therefore, I suggest you consider the possibility of asking Mr. Speaker to resume the Chair.

Mr. Winnick: Further to that point of order, Mr. Deputy Speaker. We have rightly complained that the Chancellor has said he is going somewhere else without giving any further explanation. However, in the past few minutes the right hon. Gentleman has aggravated his

offence by telling my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that in future he will not bother to give notice that he will not be here. Does not what the Chancellor is doing show a complete contempt for the House? Instead of trying to correct what he said earlier, he is saying that in future he will not bother to give notification that he will not be here. The least that he can do is to explain why he will not be here. If he is not willing to do so, we shall continue to raise the point.

Several Hon. Members: rose—

Mr. Deputy Speaker: Order. I hope that the Chancellor will now have the opportunity to say what he wants to say.

Mr. Dalyell: Further to that point of order, Mr. Deputy Speaker. As one who has been asked to withdraw from the House because of his use of language, may I be forgiven for being particular about the use of language? The Chancellor of the Exchequer referred in the hearing of all of us to the House of Commons as a "farcical charade". Is that parliamentary language and is that acceptable? What is sauce for the goose must be sauce for the gander.

Mr. Deputy Speaker: It will be much better to allow the Chancellor of the Exchequer to explain himself.

Mr. Lawson: This is the now traditional debate on the autumn statement, and it is a relatively recent tradition. This is only the fifth autumn statement that we have had. The first was the invention of my predecessor, my right hon. and learned Friend the present Foreign Secretary, in 1982, and I have been responsible for the subsequent four, but the tradition is none the worse for its recent origin. This year, however, and unusually, we have already had our debate on the autumn statement by courtesy of the Opposition on the day of the oral statement. That does not mean that this debate has to go over the same ground as the first. It gives the House the opportunity to consider for the first time the report on the autumn statement produced by the Treasury and Civil Service Select Committee, under the distinguished Chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins). Certainly, I feel compelled to do so, for who could not fail to be moved by the Committee's sole recommendation—namely that I should make any statements on what it calls macro-economic policy in the House and not outside it, as I did with my lengthy exegesis of the Government's fiscal and, in particular, monetary policy to the Lombard Association earlier this year? Moreover, the right hon. Member the Leader of the Opposition referred approvingly to this recommendation only last week.
Some of us may be a little surprised to discover that the Leader of the Opposition has developed a taste for this sort of thing, given the manifest inadequacy of his understanding of it. But I suppose the same could be said of his recent excursions into the field of strategic defence.
Be that as it may, I see little practical alternative to continuing as I have begun during my first three and a half years as Chancellor—and, indeed, as my predecessors have before me—making some speeches, such as the Budget, in the House and others, such as the annual speech to the Lord Mayor's Mansion House banquet, outside it.
I readily concede that some may feel—[Interruption.] I am afraid that it is abundantly clear, Mr. Deputy Speaker, that the Opposition's pretence that they wish to debate the economy is just that— a complete pretence, because there is no attempt to listen to what I have to say.

Mr. Bell: On a point of order, Mr. Deputy Speaker. The Chancellor of the Exchequer has referred to his Mansion House speech. On the last occasion that he made a speech to the House on the same subject, he repeated the speech that he gave at the Mansion House. May we have your guidance that this is a different speech from that which the Chancellor made at the Mansion House earlier this year?

Mr. Deputy Speaker: That is not a point of order for the Chair. [Interruption.] I appeal to the House to give a fair hearing to the Chancellor of the Exchequer.

Mr. Lawson: I readily concede that some may feel a sense of deprivation in the fact that this Government have reverted to the old-fashioned practice of having only one Budget a year, unlike the previous Labour Government, who were forced to have them every few months. But I am not altogether sure that this sense of deprivation is shared throughout the House. When, in this year's Budget speech, towards the conclusion of a relatively brief passage, I uttered the words
I will say no more about monetary policy
the reaction was scarcely one of profound disappointment. Indeed, Hansard records hon. Members as having interjected
Hear, hear."—[Official Report. 18 March 1986: Vol. 94, c. 170]
None the less—[Interruption.] I may say, Mr. Deputy Speaker, that this is, in particular, an insult to the Select Committee. What I propose to do is to deal with the points that the Select Committee has made in its report.

Mr. Hattersley: Sharing the Chancellor's desire to pay proper respect to the Select Committee, will he assure the House that he will be here when the Chairman of the Select Committee makes his speech?

Mr. Lawson: I have already discussed the matter with my right hon. Friend the Member for Worthing.

Sir Paul Bryan: On a point of order, Mr. Deputy Speaker. Is it not absolutely obvious that this is organised barracking?

Mr. Richard Hickmet: Further to that point of order, Mr. Deputy Speaker. If the Opposition wish to cover the confusion of the Leader of the Opposition because of his failure to come to the House to make a statement explaining his behaviour in the Wright case, it does not serve their case to bring this Chamber into disrepute by rubbishing my right hon. Friend's statement.

Mr. Hattersley: Further to that point of order, Mr. Deputy Speaker. I asked the Chancellor of the Exchequer a very serious question about the relationship between the Government and the Select Committee. I am anxious that these interventions should not prevent the Chancellor from telling us whether he is or is not staying for the speech of the Chairman of the Select Committee.

Mr. Lawson: Let me say to the right hon. Member for Sparkbrook that I shall stay to hear what he has to say. —[HON. MEMBERS: "Oh."] I hope that now we can get on with the debate in a civilised manner and that the Opposition will not create the bear garden that they have been creating.
This is clearly the occasion to respond to the Select Committee's report. Since I shall have one or two critical observations to make, let me hasten to add that I do not blame the members of the Committee for their report—

[Interruption.] Hon. Members should wait. It is clear that they had little time to alter what had in effect already been published by their specialist advisers.
The report levels two main charges. The first is that, and I quote—

Sir Kenneth Lewis: In terms of the Select Committee of this House, professional advisers are there to advise. The report is the Committee's report. It must not be other than the Committee's report. I do not think that my right hon. Friend should leave on the record the fact that specialist advice is reflected in the opinions that are contained in the report.

Mr. Lawson: I would say in reply to my hon. Friend that of course the report is the Committee's report. And this speech is my speech.—[Interruption.]

Mr. Ray Powell: On a point of order, Mr. Deputy Speaker. Some hon. Members have come to the House today to listen to the Chancellor of the Exchequer's speech on the autumn statement. It has been suggested that the Opposition are organising these points of order. I notice that you have accepted quite a number of points of order from Conservative Members. I want to hear the Government's response to the Select Committee's report. I am concerned about what was said about the Select Committee's report. I am even more concerned about the Chancellor's contempt not only for the Select Committee but for this House.
I wonder whether you would reflect upon the suggestion by my hon. Friend the Member for Brent, South (Mr. Pavitt) that Mr. Speaker should be called and that the sitting should be suspended so that he can examine what has already transpired since the Chancellor was called to speak.

Mr. Deputy Speaker: I am not prepared to suspend the sitting. I hope that the House will listen to the Chancellor of the Exchequer.

Mr. Austin Mitchell: On a point of order, Mr. Speaker. The Chancellor has already said that he will not stay to hear the speech of the Chairman of the Select Committee. He then attacked the Opposition Members of the sub-committee and said that its report is effectively the work of our advisers. That is a slur on the sub-committee. Is the Chancellor going to withdraw what he said?

Mr. Deputy Speaker: Order. Interventions in the guise of points of order are an abuse of the procedures of the House. We must get on with the debate.

Mr. Lawson: May I, Mr. Deputy Speaker—[Interruption.]

Mr. Austin Mitchell: On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker: Order. I have already heard the hon. Gentleman.

Mr. Austin Mitchell: May I have a ruling on that point of order, Mr. Deputy Speaker?

Mr. Deputy Speaker: I have listened to the hon. Gentleman. He knows very well that the point he raised is a legitimate matter for debate or intervenion, but that it is not a point of order for the Chair. The Chancellor of the Exchequer.

Mr. Austin Mitchell: I have not finished my point of order, Mr. Deputy Speaker. The Chancellor has made a quite deliberate slur on the Select Committee on the Treasury and Civil Service. Will he withdraw that slur?

Mr. Deputy Speaker: It is for the Chancellor of the Exchequer to make his own speech.

Mr. Lawson: The report—[Interruption.]—levels two main charges. The first is that:
The operation of monetary policy has become increasingly obscure.
The second is that in a number of areas, to quote the report's concluding paragraph which was contributed by that dispassionate seeker after truth, the hon. Member for Great Grimsby (Mr. Mitchell),
There has been a substantial change of policy.
I will discuss each charge in turn.
The first can be quickly dismissed. As Mr. Gordon Pepper, who has forgotten more about monetary policy than most of the Committee's specialist advisers have ever understood, put it in a talk to the FOREX Association of London earlier this month, and I quote:
Mr. Lawson has gone out of his way to explain how monetary policy is being operated in practice, and how it has evolved, probably more so than any previous Chancellor.
As I have time and again made clear, the central task of monetary policy is to create monetary conditions that, over time, will bring steady downward pressure on the rate of growth of money GDP, and hence on inflation. The principal indicators of monetary conditions are the rate of growth of both narrow and broad money, and the behaviour of the exchange rate. In present circumstances, when the behaviour of broad money has been particularly difficult to interpret, it is the behaviour of narrow money—most conveniently measured by MO—and the exchange rate that have assumed greatest importance. And the essential instrument of monetary policy is the level of short-term interest rates. The Committee appears to suggest that monetary policy is uncertain because the Government are unwilling to raise interest rates when it is necessary to do so. If that were true, it is difficult to understand how interest rates have come to stand at the level they do today.
I now turn to the Committee's second charge—that is, that there has been a substantial change of Government policy. It is important to be clear on what is in question here. The Committee allows that our central objective has been the same since 1979—to reduce inflation and to create the conditions for sustainable growth—and it also accepts that economic policy has always had two essential elements—firm control of monetary conditions and the reduction of public borrowing. What the Committee—and some others—claim to have found are changes in the way in which we have pursued an unchanging objective. Looking first at monetary policy, let me start with what has not changed, and come on to what has.
There has been no change whatever in this Government's view that monetary policy is the key to controlling inflation, and there has been no change either in our view that interest rates are, and must be, the essential instrument of that policy. And there has been no change either in our view that a sound monetary policy needs to be accompanied by a prudent fiscal policy, by which I mean a low budget deficit.
The Committee suggests in its report that what it calls "the enhanced role" for interest rates is new. But that is surely exaggerated, to say the least. Monetary policy,

everywhere and always, has to operate through interest rates, for the simple reason that interest rates are the price of money. Even as far back as 1980, in the Green Paper on monetary control, it was explicitly acknowledged that, alongside fiscal policy, the main instrument for controlling monetary growth was interest rates.
I readily concede, though, that in the implementation of policy, a number of things have changed.
First, interest rates have come to bear more weight in restraining money and credit because we have, quite rightly, swept away a whole apparatus of controls. When we took office, we inherited a corset for the banks, foreign exchange controls for everyone, and mortgage rationing for those buying houses. Such controls have increasingly become unworkable, as the financial system becomes more sophisticated. This inevitably puts more immediate weight on interest rates as the instrument of policy.
Secondly, we did for a while come to use systematic overfunding—the practice of selling more gilts than needed to fund the PSBR—as a way of reducing the recorded growth of sterling M3. This led to undesirable distortions in financial markets, which also made policy harder to operate, and so we concluded that the practice could not be justified—a point made forcefully in the past, as I recall, by the Select Committee itself—and I explained that fully in last year's Mansion House speech.
Thirdly, I accept that in setting interest rates it has become harder to use as a guide the particular measure known as sterling M3. But this is in no sense a bolt from the blue. The 1980 Green Paper said that, and I quote:
no single statistical measure of the money supply can be expected fully to encapsulate monetary conditions".
That was what we said in 1980. In 1980, it did, nevertheless, make sense to have only one target aggregate, and one with which the markets were already familiar, because it had been the target aggregate chosen by the previous Labour Chancellor, the right hon. Member for Leeds, East (Mr. Healey), and it was clearly important then to give a simple indication of our commitment to financial discipline. But in the day-to-day operation of monetary policy, we recognised, to quote the 1980 Green Paper again—and I do quote—that
It is insufficient to rely on one measure alone".
That was in 1980.
We also recognised that the definition used and the choice of target aggregates might need to be adjusted, again in the words of the Green Paper, and I quote from the 1980 Green Paper:
as circumstances change
and
in the face of long term changes in the institutional structure".
And, of course, that is precisely what has happened. Circumstances have changed, and the institutional structure has altered, with the result that the behaviour of sterling M3 has become increasingly hard to interpret.
In what attempts to be a serious discussion of monetary policy, the Committee's report makes hardly any mention at all of these developments. It is even more extraordinary that there is no reference at all to experience overseas, for the experience in this country has been similar to that of other major countries, most of which, including Germany, have found their monetary targets overshooting this year, while inflation has unambiguously come down.
We cannot and we do not ignore the continued rapid growth of sterling M3 and other measures of broad


money, but for a long period now this growth has proved consistent with downward pressure on inflation, so it must be looked at in conjunction with the evidence of other indicators. Principal among these is M0, the broad monetary base, which has proved a reliable indicator with a stable trend in velocity. This is why, throughout my time as Chancellor, I have chosen to set targets for narrow money in terms of M0.
The Select Committee says that it is not convinced that M0 is a useful indicator of monetary conditions. It does not say why. It is clearly absurd to imply that all narrow aggregates are misleading because the behaviour of M1 in the early 1970s did not foreshadow the subsequent inflation. It did not, but had the Committee looked at the behaviour of M0 in the early 1970s instead, it would have seen that it did, indeed, warn of the coming inflation.
In operating and formulating monetary policy, the exchange rate is clearly very important both as a transmission mechanism and as an indicator of monetary conditions. In this country, as in the other major economies, it has come to play a more prominent policy role in recent years, as institutional developments have made the monetary aggregates more difficult to interpret. But as long ago as 1980 and early 1981, interest rates were reduced because the exchange rate was clearly indicating that conditions were tight, despite the fact that at that time there was a monetary overshoot, measured by sterling M3. The 1982 medium term financial strategy explained that, and I quote once again, from the 1982 medium term financial strategy this time:
The behaviour of the exchange rate can help in the interpretation of monetary conditions, particularly when the different aggregates are known to be distorted … the Government considers it appropriate to look at the exchange rate in monitoring domestic monetary conditions and in taking decisions about policy".
—[Interruption.] I have to tell the House, and, in particular, the Opposition, that I am responding directly to the sole recommendation of the Select Committee which was that statements on monetary policy should be made in the House, and that is what I am doing.
So there should be no surprise about an inevitable and, many would say, desirable development in the appraisal of monetary conditions. Nor, incidentally, as the date of the quotation that I have just read shows, is there anything particularly recent about this evolutionary change.
Let me now turn to fiscal policy. The Committee's complaint here is not that the Government's policy has changed, but rather that it is the same. Specifically, it is unhappy that the autumn statement reaffirmed the Government's commitment to the same fiscal stance as was set out in the 1986 MTFS.
I find the reasoning in this part of the report obscure, to say the least. In places the report appears to be hankering after a return to the old neo-Keynesian fine tuning of the PSBR, against which this Government have set their face—indeed that is part of the very essence of .the MTFS. But at the same time, spurred on no doubt by its advisers, the Committee appears to have decided after all these years to abandon the PSBR as the measure of the fiscal stance. No reasons are given for this change of mind other than the fact that the PSBR can be measured either inclusive or exclusive of privatisation proceeds.
The Committee then goes on to argue that the public sector financial deficit—which is calculated not on a real-life cash basis, but on an estimated accruals basis—is a more "relevant and useful figure". This might be

slightly more impressive were it not for table 1 of the Committee's report, which sets out what purport to be the public sector financial deficits for each of the past seven years, together with estimates for this year and next year. For four out of the past seven years, the figures in the report's table are wrong, with an average error of approximately £1 billion. For this year, the Committee's PSFD estimate is a perfectly reasonable one, but its estimate for next year, which, after all, is a matter of some importance, is wholly incompatible, by a very wide margin, with the PSBR figure to which I have already unequivocally committed myself, and which at the same time is incongruously placed alongside it in its own table.
But much more important than that, on the central issue of fiscal policy, the Committee has no advice whatever to offer the House. It questions vaguely whether the PSBR should be held to 1·75 per cent of GDP next year. But it expresses no view al all as to what would be the appropriate level at which to set either the PSBR or the PSFD. It cannot say whether the Government's current and prospective fiscal stance is too loose, or too tight, or just about right.
This deficiency, though inexcusable, is perhaps understandable. I recall that last year one of the Committee's specialist advisers was urging a PSBR of £16 billion this year and £17 billion next year—something he may well wish to forget. But I find it very hard indeed to understand the justification for the doubt which the Committee attempts to cast on the Government's commitment to hold the PSBR next year to 1·75 per cent of GDP.
The reason given in the report for this—that any forecast of the PSBR is uncertain and subject to a margin of error—is beside the point, and reveals something of a misconception. When the Chancellor of the Exchequer on Budget day sets the borrowing requirement at a particular figure, he is not simply making a forecast. He is above all making a judgment about the appropriate fiscal stance and sets tax rates accordingly. And this judgment is an essential counterpart to monetary policy in the Government's overall economic strategy.
Clearly, the PSBR set at the time of the Budget has to be validated by events. But let us have a look at the record. I have so far introduced three Budgets—in 1984, 1985, and 1986. In 1984–85 the PSBR did indeed overrun, but that was because of the cost of successfully resisting the coal strike—an exceptional event which it was clearly right to take on the PSBR.
Last year, 1985–86, the PSBR undershot the figure I had set at the time of the Budget. And this year, 1986–87, the PSBR is clearly well on track. Indeed, as the figures for the first eight months published yesterday show, if anything it is more likely to undershoot than overshoot the figure that I set at the time of the Budget of £7 billion. So the Committee's implication that any figure set in the Budget is likely to be exceeded can be seen to be wholly without foundation.
We have set out to reduce the level of the PSBR, and that is what we have done. At an estimated 1¾ per cent of GDP, this year's PSBR is low by any reckoning, below the general levels of recent years, below the OECD average, and far below the grossly excessive levels from 1974 to 1979, when it averaged nearly 7 per cent of GDP or over £20 billion at today's prices. Moreover, this would still be true had there been no privatisation proceeds at all.
I do, of course, take account of the estimated proceeds of privatisation in setting fiscal policy. But, as I have always made clear, privatisation is a policy that is fully justified on its own merits. It is emphatically not a policy undertaken to massage the PSBR. Just ask the 5 million successful subscribers to British Gas.
Like other commentators, the Treasury and Civil Service Committee has speculated about the outlook for tax cuts. I decided last year no longer to publish a projection for the fiscal adjustment in the autumn statement so as to discourage the pointless and misleading calculations which are regularly made at this time of year. Subsequent events last winter proved that that judgment was right, but speculation nevertheless persists.
Let there be no mistake about this. As I have said repeatedly, a pound used in additional expenditure is a pound which is not available for reductions in taxation, unless borrowing increases, and I have categorically ruled out higher borrowing.
The House should therefore be in no doubt that the sizeable increase in next year's public spending plans, which I announced in the autumn statement, means that, despite the current buoyancy of the revenues, I very much doubt whether there will be much scope for reductions in taxation in next year's Budget.
On public expenditure, the Committee has again engaged in a textual critique worthy of Shakespearean scholars to try to demonstrate a major change of direction. The true position is very simple. We have long maintained that the state takes too much of the nation's income and its share should be reduced. This formulation can be traced back not only to the 1979 manifesto, but even before that to our policy document "The Right Approach to the Economy". And we have pursued this objective consistently.
It is true that some of the targets we have set ourselves have in the event proved too ambitious. And I have already explained to the House that we thought it right to increase the planning totals this year. But it is better to attempt to meet demanding targets than to have the complete absence of financial discipline to which the Labour party is committed.
The progress that we have made is considerable. As I explained at the time of my autumn statement, the rate of increase of public spending in real terms, even excluding privatisation proceeds, has come down from 3 per cent in the decade to 1978–79 to 2¼ per cent in the last Parliament and to 1¾ per cent a year so far in the present one. Our latest plans continue this improvement.
We have also reversed the trend of public spending as a proportion of GDP. Until 1982–83, the previous long-term growth pattern continued, mainly as a result of the severe world recession. But in the four years since then, the proportion of public expenditure has fallen progressively. Our present plans mean that this downward trend will continue so that by the end of the 1980s public spending as a proportion of national income will be back to levels last seen in the early 1970s.
I have set out the policy in terms of general Government expenditure. I had hoped that the Committee would welcome this approach, because for some time it has criticised me for focusing on the planning total and so ignoring debt interest. Yet this year, when I have based my

presentation on an aggregate which includes debt interest I note it now seems to want me to go back to the planning total.
To sum up, as I said in my Lombard Association speech in April,
The policy we are pursuing today is identifiably the same as that which we embarked on seven years ago. But it has clearly evolved—in terms both of presentation and of substance.
Indeed, it would be extraordinary had it not evolved. Since 1979, there have been enormous changes in world economic conditions, in the position of the United Kingdom, in technology, and in the operation of the financial markets. The Select Committee, the House, and indeed the country would be rightly concerned if Government policy had not evolved in the light of these developments. But to depict this evolution as
a substantial change of policy
is absurd.
If the Committee needs to be reminded of what a real shift of policy is, it need look no further than the last Labour Government—pre and post the flight to the International Monetary Fund.
Indeed, if ever there was a year in which I might have been expected to change policy, it would have been this year, 1986, with the halving of the oil price. Many people duly advised me to make such a change. I rejected that advice, and maintained the same course, and there has been no crisis. Inflation has fallen to levels not seen for almost 20 years. After a short pause, growth has continued steadily. The number of people in work has continued to rise, and unemployment now looks to be firmly on a downward trend.
The way that both the private sector and the public finances have withstood the fall in the oil price is remarkable. That is the best possible vindication of the economic policy which we have pursued since 1979, a policy which has brought five years of steady growth, low inflation, and a million new jobs since 1983.
For 1987, I foresee a continuation of this pattern, with growth slightly faster than this year, and inflation staying low. The figures that have been released since the autumn statement confirm that picture. Output and exports have both picked up, with industrial production and exports in the three months to October both 1½per cent higher than in the previous three months and manufacturing output up 3 per cent since the beginning of the year. And the latest estimate that the surplus on invisibles was some £750 million a month in the third quarter of this year, with a still larger surplus likely in the fourth quarter, puts into perspective the advice confidently given to the Select Committee by one of its specialist advisers that the earlier projection of £600 million a month was "particularly optimistic".
Seasonally adjusted unemployment fell by 25,000 in October, making a total fall of 56,000 over the last three months, the best performance for 13 years. While the inflation rate did rise last month, chiefly as a result of the rise in the mortgage rate, the underlying inflation rate remained broadly stable.
The outlook for the British economy will, as ever, be critically affected by developments in the wider world economy. One clear danger, which is more acute now following the recent Congressional elections in the United States, is that world trade will become much less free. A retreat into protectionism would be a disastrous step


backwards. Following the agreement on a new GATT round, it would be tragic if unilateral action were to undermine this progress. The United States would do well to recognise that multilateral negotiation and moderation where disputes arise are in all our interests.
The past year or so has seen substantial changes and discontinuities—the halving of the oil price, sharp falls in other commodity prices, and the major realignment of exchange rates following the Plaza agreement. The world economy is adjusting to all this, with, so far, merely a pause in the growth of world trade. In part at least, this is because the major countries have co-operated in pursuing soundly based policies. The world outlook for 1987, at the present time, like our own, is good; and it is crucial that we do not lose our way through a retreat into protectionism.
1986 has also been a notable year in the annals of the Labour party. It is the year in which it has reassembled carefully all the economic policies that have failed before, and been rejected by the electorate before. It is the year too in which it has broken with the traditions of previous Labour Governments by abandoning the effective defence of this nation. But I had better be careful, because if I am too critical of the right hon. Member for Sparkbrook he may cancel his reply, just as he refused to speak to the Confederation of British Industry last week because it criticised his policies. We have sought in vain for clarity about how he would run either monetary policy or fiscal policy. Even on public spending, his views are—shall we say—less than entirely clear. Ever since my right hon. Friend the Chief Secretary and I costed Labour's programme at some £28 billion—and that was before we had heard about the £6 billion training levy—the right hon. Gentleman has consistently failed to explain how he would finance it, whether by taxation or by borrowing, or by both. If he intends to drop any of the pledges, he should say very clearly which.

Mr. Alan Howarth: rose—

Mr. Lawson: I am coming to the end.
I have, of necessity, Mr. Speaker, ranged widely in my speech, and I hope that this has helped the House in its consideration of the autumn statement, even though it is clear that the Opposition are not the slightest bit interested in the economy or in the report by the Select Committee.
In conclusion, let me come back to the autumn statement itself. The forecast it contains offers the prospects of another year of low inflation and steady growth. It sets out public expenditure plans which make increases in spending in priority areas, within a framework in which public expenditure in total continues to fall as a proportion of national output. It is the latest step in a firm economic strategy which has been pursued consistently since 1979, and I commend it to the House.

Mr. Alan Howarth: On a point of order, Mr. Deputy Speaker. Is it not a gross abuse of the House—

Mr. Michael Forsyth: On a point of order, Mr. Deputy Speaker. Is it not a gross abuse of the House —[Laughter.]

Mr. Deputy Speaker: I shall take the hon. Member for Stirling (Mr. Forsyth).

Mr. Forsyth: I suspect that it may be the same point of order as my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) was going to make. Is it not a gross

abuse of the House that throughout the Chancellor's speech many Conservative Members who wanted to listen were unable to hear because of the organised barracking led by Opposition Front Bench Members and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) who has abused the Chancellor's courtesy in telling him that he had to leave the Chamber? Surely Conservative Members have a right to hear the Chancellor and not be subject to such juvenile tactics.

Mr. Patrick Nicholls: Further to that point of order, Mr. Deputy Speaker. It cannot have escaped your notice that over the past hour there has been a systematic attempt to break up the speech that was being delivered by my right hon. Friend the Chancellor. I appreciate that there is nothing that you can do about the yobbo tendency on the Opposition Benches if the Opposition choose to conduct themselves in that way. However, is there nothing that you can do to ensure that such behaviour is not egged on and actively abetted by the Leader of the Opposition? Is there nothing that you can do to make it clear to him that the standards that are acceptable on a Saturday night at a rugby club hop are not acceptable in the House of Commons?

Mr. Frank Cook: Further to that point of order, Mr. Deputy Speaker. Is it not preposterous for Conservative Members to make such protestations about the level of noise from Opposition Members when some of the few who have been in their places throughout the speech of the Chancellor of the Exchequer have been visibly slumbering?

Mr. Deputy Speaker: Order. Hon. Members having got things off their chests, perhaps we can get on with the debate.

Mr. Roy Hattersley: I wish to make it clear, in response to the point of order raised by the hon. Member for Stirling (Mr. Forsyth), that at no time during the speech of the Chancellor of the Exchequer did I abuse him. I propose to start doing that now.
I am sure that the Chancellor of the Exchequer will recall that when last he addressed the House one British newspaper of some distinction described him as having turned in a "tawdry" performance. I have no doubt that even now the pencils are being sharpened in the Press Gallery. Let me tell the right hon. Gentleman that his performance matched unbridled arrogance with stupefying complacency. During the Conservative party conference it was put about by his advisers that he was being helped in the preparation of his oratorical efforts by one of the scriptwriters for "Yes Minister". I doubted that at the time, but I do not doubt it now.
Apart from the absurdities at the beginning of the right hon. Gentleman's speech—absurdities that underline the boneheaded insensitivity that marks so much that he does—there was an extraordinary attack on the Select Committee on the Treasury and Civil Service. It was one of the most unexpected attacks that any of us in the House have ever heard. I remind the Chancellor of the Exchequer of the composition of the Select Committee. It comprises seven Conservative Members, three Labour Members and a Conservative Chairman of great distinction, an ex-Treasury Minister, who is, I believe, respected on both sides of the House. Under his chairmanship a


Conservative majority turned in a unanimous report. It happened to be a report which criticised the Chancellor of the Exchequer, but to justify an attack on the Committee and its advisers —

Mr. Nicholas Budgen: Will the right hon. Gentleman give way?

Mr. Hattersley: No. I should make it clear—

Mr. Budgen: rose—

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. It seems clear that the right hon. Gentleman is not giving way.

Mr. Hattersley: If I give way, I shall postpone the opportunity for the Chancellor of the Exchequer to leave to sabotage the British aircraft industry. I tell the hon. Member for Wolverhampton, South-West (Mr. Budgen) —

Mr. Budgen: rose—

Mr. Hattersley: I tell the hon. Gentleman and the House that, with the exception of the Chancellor of the Exchequer and that of the Chairman of the Select Committee, the right hon. Member for Worthing (Mr. Higgins), I do not propose to give way to anyone. I take that view because we should be examining—this is what I intend to do—the Government's economic strategy and the commentary upon it which the Select Committee provided. What we should be doing, and what the Chancellor of the Exchequer prevented us from doing in a proper fashion by his earlier behaviour, is taking the opportunity that these debates provide to examine the principles upon which the Government's economic policy is based.
In the recent past—I believe for seven years—we have at least agreed on what comprised the Government's policy, for the principles of the Government's economic policies were set out in the medium-term financial strategy. We knew what the principles were and we argued about their values and merits. We noted that the monetary targets on which the policies were based were consistently and constantly missed. We knew what the policy and strategy were even as we observed their practical results. These included the highest unemployment level in our history, the highest real interest rates in our history, the worst balance of payments in our history and the lowest sterling value in our history. We have known the results of the policies as we have heard the boasts that have been made about them. We have known also of the money that has been spent in an attempt to ensure their success.
The medium-term financial strategy can be compared only with the Chelsea football club. Each week the Chancellor announces that he is certain to win the next match. If we take account of history, however, we note that our performance is worse than that of our competitors. We note that our performance is much worse than it was before the medium-term financial strategy was put in place. For years the Chancellor assured us that as long as the Government kept their nerve and adhered to their strategy, eventually interest rates would fall, sterling would appreciate, the balance of payments would produce a surplus and there would be a real and sustained reduction in unemployment. Up to now none of those things has happened, yet on all the evidence, which was

documented carefully by the Select Committee, which is the offence which resulted in the abuse that has been heaped upon it, the medium-term financial strategy has, in truth and reality, been abandoned.
As the strategy has been abandoned, the question I ask, which the House asks, and which the country will ask, is how the Government can possibly justify all the waste and suffering which was inherent in the strategy over the past seven years. If the strategy has been abandoned, for what purpose did we cut public expenditure, close hospital wards, reduce pensions, end local authority housebuilding, increase rate bills and persist with the petty but mean cuts such as the reduction in mortgage interest that is eligible for reimbursement through supplementary benefit payments to the unemployed?

Mr. Michael Forsyth: rose—

Mr. Nicholls: Will the right hon. Gentleman give way?

Mr. Hattersley: No. I have made it clear that I do not propose to give way.

Mr. Nicholls: rose—

Mr. Deputy Speaker: Order. The right hon. Gentleman is saying that he is not giving way.

Mr. Hattersley: I have no doubt that weak-minded Government Back Benchers will argue that the medium-term financial strategy has achieved its crucial objective of lower inflation. Some, in an excess of loyalty, may even assert—

Mr. James Couchman: On a point of order, Mr. Deputy Speaker. Is it in order for the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) to refer to Conservative Back Benchers as weak-minded?

Mr. Deputy Speaker: Order. Various exchanges take place and I am sure that "weak-minded" is not an unparliamentary term.

Mr. Hattersley: Those who believe that the medium-term financial strategy is still in place and alive and well should consider some of the passages in the Select Committee's report which the Chancellor of the Exchequer did not deal with when addressing the House. I am sure that he omitted to do so only because he was hurried. I repeat that the Select Committee came to a unanimous judgment with a Tory majority under a Tory Chairman. Explicitly on the Government's inflation record, it stated:
since its first term in office, the rate of inflation has remained broadly unchanged, and has declined in 1986 mainly because of the steep fall in oil and other commodity prices. Domestic symptoms of inflation have been not greatly affected.
I remind the Chancellor of the Exchequer of the figures on which that assertion its based. In June 1983, the retail prices index was 3·7 per cent. This month it is 3·5 per cent. It is forecast on the Government figures that it will rise to 3·75 per cent by the end of this Parliament.

Mr. Alan Howarth: rose—

Mr. Hattersley: No. I shall not give way. More objective predictions suggest—

Mr. Howarth: rose—

Mr. Deputy Speaker: Order. The hon. Gentleman should know that the right hon. Gentleman has said he is not giving way.

Mr. Hattersley: I do not want the House to miss the figures, so, because of interruptions, I shall repeat them. In 1983 the retail prices index was 3·7 per cent. —

Mr. Michael Brown: On a point of order, Mr. Deputy Speaker. The right hon. Gentleman has referred to a Select Committee, and you will recall that a recent Select Committee on Procedure suggested that one of the problems about our debates was that right hon. and hon. Members did not indulge in the old-fashioned practice of giving way, thus ensuring that there was not proper debate. Will you remind the right hon. Gentleman of the findings in that Select Committee's recent report?

Mr. Deputy Speaker: As the hon. Gentleman knows, that is not a point of order for me.

Mr. Hattersley: I shall try a third time. In 1983 the RPI was 3·7 per cent. It is 3·5 per cent. this month and rising, and it will be 3·75 per cent. by the end of the year, on the Treasury's own estimates. On a more honest and objective analysis, it will be over 4 per cent.

Sir William Clark: Will the right hon. Gentleman give way?

Mr. Hattersley: No.
In the debate on the economy on 6 November the Chancellor was absolutely explicit about how the Government should be judged. He said that the Government must be judged by what has happened since 1983. Does the right hon. Gentleman accept that criterion, which is his own, for the inflation rate? If so, the Government have not only failed to hold down inflation during this Parliament's lifetime, but will have presided over a period during which inflation has risen.
I suspect that the Chancellor will shift his ground, as he usually does, and will say that the inflation rate has to be measured from 1980; that being the time when the Government, having inherited an inflation rate just below 10 per cent. and having pushed it up to more than 21 per cent., began to bring it down again. As the Chancellor is arguing with me about the base date, I shall ask him—and I have said that I shall give way to him—to tell us the date from which he believes that the Government's economic record should be judged.
In a single speech, in one and a half columns of Hansard, the Prime Minister chose five different base years as the basis for her phoney statistics: 1979 for manufacturing productivity; 1981 for economic growth: 1982 for public spending; 1983 for manufacturing output; and 1985 for manufacturing investment. The Prime Minister talks as though the Government came to power bit by bit, when really they are disintegrating bit by bit. The country will want to judge the Government on all their seven years in office. Let me remind the Chancellor of what they involve. Two million full-time jobs have been lost, unemployment has increased by 2 million, manufacturing output is down by 7·5 per cent. and manufacturing investment is down by 17 per cent. Moreover, our manufacturing balance of trade has been turned from a £4 billion surplus into a £4 billion deficit.
One could go on and on listing the failures of the past seven years. The point is that the failures of the past have all been justified on the promise that as long as we stick to the medium-term financial strategy, everything will come out right in the end. But we now conclude that the

medium-term financial strategy has lost its purpose, its heart and its central core. In the words of the Select Committee, the Government
lacks a coherent strategy for the setting of fiscal strategy".
The Select Committee went on to say, in another point that the Chancellor did not deal with, that it
notes the disappearance of the Treasury's former claim that the MTFS would damp down inflationary expectations.
If the Chancellor wants to argue with that, I shall certainly give way to him. Even the promises on public expenditure, the commitments that so excited those new, hard-faced Conservatives who have done well out of privatisation, have been broken. Whether or not the Chancellor likes it, the Select Committee is explicit and precise in describing his change of stance and position.
The Chancellor's first intention was a reduction in public expenditure. His second intention was to hold it constant in real terms. Now, the best that he promises, or the worst in terms of public services, is that it should be held steady as a percentage of gross domestic product. The truth is that he has constantly failed to hit his targets on spending and on money supply, and now he has left that whole policy to disintegrate.
The medium-term financial strategy has disintegrated partly because of the Government's hope that they can now suddenly pretend to be enthusiasts for public expenditure, and enthusiastic about the public services that that expenditure provides. But the real reason for the collapse of the medium-term financial strategy is its own internal contradictions.
In the real world, the medium-term financial strategy could never have worked. It is now dead, and it is being kept from putrefaction by the one firm item of economic policy that the Government possess and the one firm item of economic policy that the Select Committee identified: the commitment to historically high interest rates, which are very much higher than those found in our competitor countries and in our more successful industrial neighbours. The Select Committee quoted the Chancellor's extraordinary words, when he said:
the guiding principle of policy is to maintain … a level of short term interest rates that will deliver the monetary conditions needed to reduce inflation.
The Chancellor made some references to Shakespearean scholars. As he seems to be in a textual and semantic mood, I shall ask him when short term turns into long term. After all, we have had historically high short term interest rates for longer than ever before. He has maintained interest rates at such a high level that manufacturing industry has been unable to afford the new investment that would enable it to expand output and exports, and to drag our balance of payments back into surplus. It is, of course, the Chancellor's interest rate policy that has increased the RPI this month. It was his interest rate policy that pushed mortgage rates to record heights.
Our real interest rate now stands at 8 per cent., and that uniquely high interest rate is the crutch on which the ailing pound now leans. But it is the policy of high interest rates that has put the pound under pressure, and that has done the damage to sterling from which we now suffer. We all know why there has been pressure on the pound and when it will reappear. International opinion has judged that we cannot pay our way in the world and that without oil we shall become a debtor nation. Those countries have seen oil income fall and they know that it is running out. They


have also witnessed the Chancellor's complacency in the face of that. Three months ago he told us that we had lost half of our oil income in 25 weeks and had survived.
We have survived but at the price of a balance of payments that has moved from surplus into deficit, and at the price of interest rates that penalise home owners and incapacitate industry. That is why, in the long term, high interest rates are putting such pressure on sterling. They have undermined our capacity to export, because they have prevented manufacturing industry from expanding, held back investment, and made it impossible for manufacturing industry to fill the gap left in our balance of payments by the reduction in oil revenues.
We have survived, as the Chancellor said, at the cost of creating a vicious spiral. The monthly announcement of balance of payments deficits undermines sterling. Interest rates are then increased to prop up sterling. The interest rate increases themselves debilitate industry, making it impossible for it to export, and further undermining our balance of payments. The idea that the Chancellor should think that high interest rates are an unequivocal boon when they are destroying manufacturing industry, destroying our export potential, undermining our balance of payments and therefore bringing fundamental pressure on the pound, answers many of the questions about which international opinion now ponders and wonders.
Because of industry's inability to invest, to produce and export, last month we had the brief and crude statistical deception to obscure the balance of payments record during the three months in early autumn. That record was a disaster in August, a catastrophe in September and just plain bad in October. It is against that background that the Chancellor says in his more expansive moods, hoping that he can win a few tawdry votes, that public expenditure is increasing.
As is clear after an analysis of the autumn statement, the real increases in public expenditure that it entails have been very much exaggerated. When the increase is genuine, it is more often than not the result of mistakes rather than intentions. The increase in the social services budget is largely the product of unemployment and therefore higher unemployment benefits. I give the Government credit for that not being their intention when last year's plans were set. On present economic policies, the current level of public expenditure cannot be sustained, for it is being financed by a combination of short-term expediency and long-term profligacy. It is being financed by the sale of public sector capital assets—

Mr. Nicholls: Will the right hon. Gentleman give way?

Mr. Hattersley: When I talk about profligacy, I talk about the sale of valuable national assets, badly underpriced so that the Tory party's friends in the City can get them at bargain prices. If that is not profligacy, I do not know what is. Current public expenditure is being financed by tax income, which has come from the boom in credit and consumption.

Mr. Couchman: Will the right hon. Gentleman give way?

Mr. Hattersley: That boom is sucking in imports and making certain that our balance of payments is in deficit. That extra tax income—

Mr. Ian Gow: Will the right hon. Gentleman give way?

Mr. Hattersley: That extra tax income—what the Chancellor coyly calls buoyant tax receipts—is the direct result of earnings outstripping the inflation rate—levels of wage settlements which he used to condemn—so I ask the Chancellor again, for I am more than willing to give way to him—[HON. MEMBERS: "Come on."] I ask the Chancellor again, for I am more than willing to give way to him, does he still condemn wage settlements that are moving forward faster than the rate of inflation, and if he does not condemn them—[Interruption.]

Mr. Deputy Speaker: Order. The right hon. Gentleman must not persist in asking the Chancellor of the Exchequer to intervene—

Mr. Budgen: On point of order, Mr. Deputy Speaker. Is not the attitude of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) an insult to the House? He is not here to have a private conversation with the Chancellor of the Exchequer. He is here to address the whole House. It is no less than an insult to all of us if he gives way only to the Chancellor of the Exchequer.

Mr. Deputy Speaker: Order. Fortunately, it is not my job to determine the attitudes of right hon. or hon. Members. It is my duty to uphold the rules of the House. That was not a point of order.

Mr. Gow: Further to that point of order, Mr. Deputy Speaker. Is it not your duty to ensure that Members of the House can follow what is being said from the Opposition Front Bench? It is extremely difficult to follow what the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is saying. His speech is so full of inconsistencies—

Mr. Deputy Speaker: Order. [Interruption.] Order. It is, indeed, difficult to follow the right hon. Gentleman because of the noise from the House. We believe in hearing every point of view, and the House would get on much better if there were not so many interruptions from a sedentary position.

Mr. Nicholls: Further to that point of order Mr. Deputy Speaker. May I ask for clarification of the ruling that you have just made? As I understand it, you said that because the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersely) has refused to give way, on any new points that arise, he cannot be asked to give way on them. Why is the right hon. Gentleman under your personal protection, Mr. Deputy Speaker, and why can we not ask—[HON. MEMBERS: "Withdraw."]

Mr. Deputy Speaker: Order. I did not hear what the hon. Gentleman said. It is in order for any hon. Member to try to intervene. It is not in order for him to persist when it is obvious that the Member who has the Floor does not intend to give way.

Mr. Hattersley: I shall ask the Chancellor my question again. For some years he has condemned wage increases running ahead of the inflation rate. For some years he has attempted to exhort British industry to hold down those increases. It is that disparity between inflation and earnings that has produced the buoyant economy on which he now relies to meet his tax bills.

Mr. Lawson: Nonsense.

Mr. Hattersely: If the right hon. Gentleman is saying "Nonsense" while sitting down, will he get up and tell us where the new buoyancy is coming from?. Which of the taxes, VAT or otherwise, is providing the extra revenue? Is it the result of the disparity between earnings and prices? Answer came there none. What the Chancellor knows, and why he is wise not to speculate on those matters, is that the expedient on which he relies for paying his temporary bills cannot last for ever. Sooner or later there will be no more national assets to sell off. I describe that policy as profligacy again. Sooner or later the export—import imbalance will be so great that the right hon. Gentleman will not be able to continue in his present vein. The election tactic that the Government now operate is to pray that they can win the race between a general election and a sterling crisis, and in the meantime spend now in the hope that they will be able to make the country pay later.

Sir William Clark: Will the right hon. Gentleman give way?

Mr. Hattersley: No.
The tax cuts that I confidently predict will come in the next Budget, generally financed out of asset sales, cannot be sustained. Were the Tories to win the election, their victory would he followed by a massive increase in taxation—

Mrs. Elaine Kellett-Bowman: Like the last time.

Mr. Hattersley: The hon. Lady is absolutely right. They did it last time. They did it in 1979. I was about to make the point, and I am grateful to her for making it for me, but I shall repeat it. An election victory would be followed by a massive increase in taxation, as it was in 1979. More essential services would be jeopardised by privatisation. There would be more public expenditure cuts. Lord Young's manipulation of Government statistics would be abandoned and even the official unemployment total would begin to rise again.
That leads me to my one criticism of the Select Committee. It seemed surprised as well as offended that the Chancellor chose to make his policy speeches outside the House to carefully selected audiences of bankers and stockbrokers. They like his policy. His policy has pampered them at the expense of manufacturing industry. They like his policy because it has made them rich while it has increased poverty and unemployment. Outside the charmed circle of his own choosing, the Chancellor relies on bogus statistics and fraudulent forecasts. He may care to comment on this, or tell the Minister of State to do so. He is, after all, the Chancellor who dare not publish his own Department's report on the economic effect of income tax cuts. The truth is that the Chancellor has been rumbled. What made him in such a savage temper today is the fact that he was rumbled by a Select Committee with a Tory majority. That Committee proved—and the country knows it—that the Chancellor lives on arrogance, faked figures and borrowed time. That is why we will vote against his autumn statement tonight.

Mr. Terence Higgins: I greatly welcome the positive response of my right hon. Friend the Chancellor of the Exchequer to the report of the Treasury and Civil Service Committee. Its task is to monitor the operation of his Department and to report to the House on the basis

of the evidence that it has received. I believe that it has carried out that duty and provided a better foundation for debate than would otherwise have been the case.
Before I consider some of the technical matters to which reference has already been made, I should comment on one or two of the remarks made by my right hon. Friend. If I recall correctly, he sought to say that he did not blame the Committee for its report. I am sure that I speak on behalf of every member of the Committee when I state that we accept full responsibility for what was said in the report and that we reported on a unanimous basis. Of course, we take advice from those who have kindly agreed to give us advice, but the analysis and the report are entirely the responsibility of Committee members who have thought out matters for themselves. The report is based on a Chairman's draft, which I prepared. Indeed, I have done little else for the past three weeks or so except prepare drafts for one Committee or another.
It is wrong of my right hon. Friend to suggest that the report is not the responsibility of the Committee or, as he preferred to put it, that he did not blame the Committee for what was said in the report. Those from outside who advise Committees do so for a pittance compared with what they usually earn. They provide us with expect advice across a wide range of opinion. They are not taken from one or other part of the political spectrum.
There is a more fundamental point. It is a recognised practice in the House that one does not attack the Government's advisers. The reason for that is sound—they are unable to defend themselves. It is unfortunate, therefore, that my right hon. Friend has sought to ascribe blame—

Mr. Lawson: They can defend themselves.

Mr. Higgins: Perhaps they can, but not in the House. However, with respect to the Chancellor, it is not a question of their advice being the Committee's report. That is totally and utterly wrong. The report is that of the Committee. My colleagues on the Committee have developed considerable expertise in the light of the numerous inquiries that have been made.
I should also mention that the Committee has a wide spectrum of members ranging from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). That is a wide spectrum, and there is much opinion in between.

Mr. Budgen: rose—

Mr. Higgins: With respect, I should like to finish.
As economic policy changes, so, of course, the Committee's angle of attack when taking evidence from the Chancellor is also inclined to change. None the less, the report was the unanimous report of the Committee.

Mr. Budgen: My right hon. Friend seems somewhat offended by the Chancellor's attack upon the Committee. We made a vigorous attack upon some parts of the Government's economic policy. It would have been rude and patronising if the Chancellor had not dealt with such criticism as vigorously as we attacked the Government's policy. There need be no collective sense of irritation because the Chancellor has taken the opportunity to criticise our report with the same vigour as we criticised his policies.

Mr. Higgins: I cannot agree more. I began my remarks by saying that I greatly welcomed the Chancellor's positive response. On one side of the fence is the business of the Select Committee and on the other side is the Chancellor. It is our task to monitor his actions.
I want to quote from the report because that is the nub of the Chancellor's concern. Paragraph 4 states:
In previous reports we have drawn attention to the fact that, although the Government has been successful in achieving a number of its economic ends, the manner in which these have been achieved has differed from that originally propounded in successive versions of the Medium Term Financial Strategy. It is important that economic policy should be flexible, and able to deal with circumstances not originally foreseen, but we think it would be more appropriate, when policy has obviously changed, for the Chancellor to admit it. Otherwise it is more difficult for us to learn lessons from past experience or indeed to ascertain what present policy really is.
We drew attention to a number of changes that have taken place. In reply, the Chancellor has stressed that the objectives of economic policy have remained the same. We do not dispute that. Indeed, we emphasise that that is so. However, it is absolutely clear that once we have the objectives—which may be common on both sides of the House—the policy that is adopted to implement those objectives may vary greatly. I do not think that it can be seriously argued, in the light of the clear quotations that we made from previous Budget and autumn statements, that the policy has not changed. We have explained in great detail how it has changed, and I do not understand why the Chancellor objects to admitting that it has changed. No one will complain if the Government show flexibility in these matters.
It is right that we should acknowledge the Government's achievements, not least in controlling inflation. That is very important if we are ever to combat the basic problem of unemployment. We should also recognise the extent to which employment has been increasing and the rate of economic growth.
It would be extraordinary if any Select Committee came out with the view that everything that the Government were doing was marvellous. That is not our function. Inevitably, the Chancellor must recognise that Committees tend to be critical, and to a large extent that is their proper function.
I want to spend a moment or two detailing some of the changes, the most obvious of which has occurred in connection with public expenditure. The Government started off by saying that they were going to cut public expenditure in real terms. Then they gradually moved to a different position and said that it would be held roughly constant in real terms and would decline as a percentage of GNP. That is a radical change in policy, and for many Conservative Members it is a considerable disappointment. The Chancellor must recognise that change. I do not see how it can sensibly be argued that that is not the case.
The report details the change in the use of monetary indicators. We complain not that the Chancellor has been flexible, but that he insists that he has not been flexible. A similiar observation was made about the exchange rate.
I want to consider a technical point made by the Chancellor. We say in the report that the public sector financial deficit is a better guide than the public sector borrowing requirement to what is really happening. That is entirely consistent with a point that the Committee has stressed—that the PSBR is not a good guide when the receipts from privatisation are treated as a reduction in

public expenditure. We have consistently argued that that is an absurd way of looking at it. We make the constructive suggestion that the public sector financial deficit is a better guide.
In his speech, the Chancellor objected to the figures that were quoted. He said that some were out by as much as £1 billion. However, if one were to look higher up the page, one would see that the PSBR is subject to a margin of error of something like £2·5 billion. That may be so. We are perfectly happy for the Chancellor to correct the figures if we have got them wrong. After all, he has more advisers than we have and I would not criticise those advisers whatever they came up with. We are perfectly happy to accept the figures that the Chancellor puts forward, but we believe that the concept that we have advanced in what we hope is a practical suggestion is a better guide than that previously advanced. We appreciate that there is a certain convenience about the public sector borrowing requirement—everyone is used to it and to the problems that go with it—but to argue that it is an ideal measure is, in our view, a mistake.

Mr. Lawson: I have listened carefully to what my right hon. Friend has said. If he wishes—I quite understand this and I have made this point on many, many occasions —if he wishes to look at what the PSBR would be if privatisation proceeds were added back in, in other words, if they were not counted as negative expenditure, it is a perfectly reasonable thing to do. But that is no case for looking at the public sector financial deficit, which is a different aggregate, done on an accruals basis with an accruals adjustment in it, on an estimated basis, and fluctuates in a very unpredictable way and which has no relation whatsoever to underlying conditions. What he has not explained is why, if his problem is privatisation proceeds, he does not simply look at the PSBR with privatisation proceeds added on top and why he goes to the PSFD. That is what I do not understand.

Mr. Higgins: I fear that I do not have time to deliver the Chancellor a lecture on the subject, but there are substantial arguments—quite apart from the point about privatisation proceeds—in favour of the public sector financial deficit. Indeed, I have argued consistently that the whole thing should be examined in a balance sheet context as well, because that is very important. The Chancellor says that the public sector financial deficit is subject to random fluctuation, but he knows perfectly well that the public sector borrowing requirement does not distinguish between intended changes in borrowing and changes resulting from subsequent external events, so the same argument applies equally to the PSBR. I hope that we can have a debate about this. One of our recommendations—indeed, our only recommendation, as the Chancellor rightly pointed out—is that these matters should be debated on the Floor of the House, not outside. I therefore welcome his intervention and hope that we shall be able to pursue this matter.
I am anxious not to take up too much time because much has already been wasted, but I should like to deal with two further points. With regard to exchange rates and interest rates, I commend paragraph 19 of our report to the House. In that paragraph we state our belief that at present monetary policy is uncertain because the Government wish to prevent interest rates from rising and the exchange rate from falling. As this relates to changes


in policy, I feel bound to point out in parentheses that, although there has been a reduction in the PSBR which I welcome, there has not been the corresponding fall in interest rates that was envisaged when the policy was originally put forward. As we point out in our report, that is because the exchange rate has been given greater emphasis than before and essentially we now have an interest/exchange rate policy.
The Opposition will he less happy about my next point. I have no doubt at all that if there is any possibility—I do not myself recognise it—of a hung Parliament or a Labour Government there will inevitably be downward pressure on the exchange rate as the election approaches due to fears aroused by Opposition policy. If the Chancellor does not want the exchange rate any lower, as he has stated, there will be upward pressure on interest rates—but he does not want that either. Therefore, as our report points out, there is a real dilemma that the Chancellor has not spelt out in detail and that he did not deal with today.
Having said all that, I think that in many ways the Chancellor is not over-optimistic. I do not share the concern expressed by some about the balance of payments. I think we are very fortunate that exchange rates have moved as they have, with no great change in relation to the dollar but a substantial reduction in relation to the deutschmark. To the extent that we buy in dollars and sell in deutschmarks, that is a good thing. Given the so-called J-curve effect, we may reasonably hope that the balance of payments will remain secure. Therefore, I do not share the concern expressed by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley).
Finally, one of the functions of the Select Committee is to warn of impending problems. We regard that as an important function and we have expressed concern about what the Governor of the Bank of England, in evidence to us last year, described as the overhanging glacier of liquidity. It is a matter for conjecture to what extent comparison of the present situation with the period 1972 to 1974 produces a sense of déja vu. The Chancellor made a point about MO in his speech today. Nevertheless, the Committee is concerned about the increase in liquidity. It is, indeed, an overhanging glacier, but it is largely frozen at the moment due to a combination of interest rates and expectations about inflation. Like my right hon. Friend the Chancellor, I believe that inflation will remain at a very low level—a better level, as he rightly points out, than we have known for 20 years or more. Nevertheless, there is a difficult situation and we should expect the Chancellor, in the light of our recommendation, to analyse it in the House, not just outside. If an important statement is to be made on monetary policy, it is right that it should be made in this House.
I have spoken for longer than I expected because my speech was not precisely as I expected. We have pointed out the disappearance of rational expectations from the Government's economic policy, and no one in this place should have rational expectations about what is going to happen next. Having said that, I believe that ours is a constructive report and that our comments are fair. The report is part of a continuing debate, and it is a function of the House of Commons to debate these matters in a serious way. Only if we do that can we fulfil the obligation placed upon us by the electorate to ensure that the economy is managed as effectively as we can arrange. I believe that the Select Committee, having produced a

unanimous report on this matter, has made a contribution to the debate—no more, no less. We may be shown to be right or we may be shown to be wrong, but the level of debate and the extent to which policy is examined is far greater than it was before the Select Committee system was set up. I believe that that is an advantage to democracy.

Mr. David Penhaligon: I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof,
rejects the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November, noting that after seven and a half years of the Conservative Government both long-term unemployment and real interest rates are at record levels; further notes that inflation is once again on a rising trend, that earnings are being allowed to increase far ahead of productivity, and that the current account of the balance of payments is moving into rapidly worsening deficit; and therefore calls on Her Majesty's Government to strengthen investment in manufacturing industry, the infrastructure, and training, to negotiate entry into the exchange rate mechanism of the European Monetary System at a competitive rate and to introduce an incomes strategy to reduce the increase in unit labour costs to the level of the United Kingdom's major competitors.
I congratulate the right hon. Member for Worthing (Mr. Higgins) on opening the debate, as there was very little debate before. The Chancellor's pressing engagement was apparently less pressing than he made out. [HON. MEMBERS: "He has just gone."] I did not expect his patience to stretch so far as to listen to what the alliance had to say. He has never listened before, but he will discover what we have to say when the election comes. [HON. MEMBERS: "Where are your friends?"] There is a higher proportion of alliance Members here than of any other arty. [HON. MEMBERS: "An alliance of one."]
The Select Committee report makes the obvious point that what were thought to be the all-important guides have been dropped. I tried to intervene to ask the Chancellor exactly what were the distortions of M3 to which he referred. I suspect that there is some truth in his claim that M3 does not accurately record for the nation's interest all that it was thought to record. Some of us never thought that it did. Nevertheless, I should have liked to ask the Chancellor exactly what had allowed M3 to reach 20 per cent in real terms but 23 per cent in absolute monetary terms. Unfortunately, he did not want to reply.
It is clear from the Select Committee report and from the comments of the Opposition spokesman that there is general recognition that interest rates are the Chancellor's chief weapon today. High interest rates have become endemic in the economy. Few hon. Members are prepared to argue through the reason why the Chancellor is pursuing high interest rates and to outline an alternative.
The Chancellor has admitted once or twice why he is pursuing high interest rates. I believe that he is pursuing high interest rates because he knows that, with such conditions, the pound is likely to sustain a higher value. Not many would argue with that. It is a deliberate ploy to make exports dearer and imports cheaper. Manufacturing industry therefore has difficulty selling abroad and at home. The Chancellor pursues that policy because he wants to put maximum pressure on what he believes to be the engine of pay settlements that are above what he considers a tolerable level.
I am willing to continue the argument through, whereas the right hon. Member for Birmingham, Sparkbrook (Mr.


Hattersley) is not. I believe that pay settlements during the past several years have been higher than is in the nation's interests. If we want to restore our manufacturing strength and to give some of our young people a real chance in productive employment, we have to do something about pay settlements. As the amendment says, I and my party believe that the method lies with an income strategy which, if announced and discussed during a general election campaign, would command much support, bearing in mind the fact that the alternative is how the Government are running the economy now. High interest rates are destructive. I understand the reason for the Chancellor keeping them high, but there is a less destructive way in which to tackle the problem.
I am not surprised that the debate has drifted somewhat wide of the autumn statement—we have to discuss the general trend and what policies are being pursued. I am deeply disturbed by several things. It is said with increasing optimism by Conservative Members that we might be entering a period in which the number of registered unemployed people declines. That may well be true, but it is worth remembering why. There are four principal reasons. First, we have had 18 recalculations of the number of unemployed. Secondly, we have the restart interview. My constituency was one of the trial areas, so I have some knowledge of restart, and I am not impressed. Thirdly, there has been a credit boom which is generating employment in shops. Fourthly, the Government have an enormous special measures programme.
The jobs involved, which are real for the people who have them, fall a long way short of the self-sustaining real employment that we heard so much about in 1979. I do not believe that even that which we have is sustainable for long. We now have 1·2 million people who have been unemployed for more than one year, a manufacturing surplus of £5·5 billion has fallen to a deficit of more than £3 billion and interest rates are the highest in the western industrial world. They are probably 8·5 per cent. in Britain, which is three or four points higher than elsewhere.
The irony of the autumn statement is that the Chancellor has presented figures which, within his limited ambitions, balance the books, but he has managed to balance the books only because his policies are failing. The Government are near to balancing the books and might be able to make tax cuts, but it is not because their policies have been a success. Consumer credit has increased from 45 per cent. of average annual disposable income in 1979 to 70 per cent. today. We have overtaken the United States in consumer credit during the past 18 months. Pay rises are too high.

Mr. Alan Howarth: If the hon. Gentleman is concerned about the increase in consumer credit, does he believe that the remedy is higher interest rates?

Mr. Penhaligon: I did not accuse the Chancellor—[HON. MEMBERS: "Answer."] I do not claim to know the answer to everything but, unlike other hon. Members, I am stupid enough to have a try.
I did not argue that the Chancellor pursues high interest rates to reduce consumer credit. Consumer credit is out of hand because of its availability and we will have to develop some method of controlling it. We will have to revert to artificial controls such as we had several years ago. I

remember, when I was first interested in politics, that Budgets were dominated by charts which said that we could borrow 25 per cent. as opposed to 30 per cent. of the price of a television. If the House applied its mind to the consumer credit boom, it might make progress. I am not arguing that interest rates are the solution—the Chancellor has demonstrated that they are not.
The Chancellor's programme might be able to deliver tax cuts, but only because of the failure of his policies. He gets a tax break on the consumer credit boom in the shape of VAT and corporation tax. Most of the money seems to be going on consumer goods, and the Chancellor gets a 15 per cent. cut. The vendor gets a profit—at least, I hope he does—and the Chancellor gets a break on that as well.
As the Chancellor has said, he has had an unexpected tax break from the consumer boom. He also gets a break from the pay rises which he and I believe are too high. He has also gained from public asset sales.
I shall not argue the economic merits of that, but the fact remains that all those forms of income cannot be sustained. The credit boom cannot continue for ever and we cannot continue to sell public assets. I hope that high pay rises will end too, because they are a self-destruct mechanism. The three pillars of the Chancellor's fortunate position are unsustainable or self-destruct mechanisms. His position can be sustained for one quarter of one third of a Parliament at best, but no long-term recovery for Britain is built in.
The only alternative that has been proposed today is the alliance amendment. We are drawing near to a general election. We do not know when it will be, but we will be nearer to it tomorrow than we were yesterday. It is amazing that, in a major economic debate, there is no official Opposition amendment saying what they would do.
We make it clear what our fears are and what we believe is an alternative. We must start to invest in manufacturing industry, infrastructure and training. We must negotiate entry into the exchange rate mechanism of the European monetary system at a competitive rate and introduce an incomes strategy to reduce the increase in unit labour costs to the level of our major competitors.
Some hon. Members, when trying to be elected to Parliament, are afraid to say, "Elect us to power and we shall keep your wages down." They are right that that does not sound like a ringing phrase which, when delivered to the nation, will cause it to vote for them. At the general election this Bench will explain to the British people why, without an incomes strategy, there is no alternative to the way in which the country is at present run, no hope for young people and no re-establishment of our manufacturing base. Without that ingredient, at best we carry on as we are and at worst have a Government who not only have no incomes policy but who spend money as if it grows on trees. Therefore, we shall vote for our amendment, believing that it makes a useful contribution to the debate.

Mrs. Marion Roe: I welcome the autumn statement and its reaffirmation of the Government's determination to achieve the conditions in which this country can flourish. In particular, the statement emphasised two key points: first, that rigorous control of public expenditure will always be vital to the economy,


and, secondly, that that has been the base of economic growth which has allowed for increased resources for priority programmes.
I shall concentrate on the provision for local government and taxation policy. Local government receives the largest increase in the changes that have been outlined. It continues to have a significant effect on public expenditure, and the increase for 1987–88 alone is some £4 billion. In a single year, taxpayers will contribute through aggregate Exchequer grant an additional £1·5 billion.
In theory, that should keep rate rises low—at worst, in line with inflation. Yet we are already hearing rumours of large rate rises planned in some authorities, particularly in the London boroughs. At the same time the Audit Commission has reported that the financial behaviour of some authorities is heaping up trouble for the future. Some authorities have entered into financial arrangements with city institutions, apparently in the belief that they will be bailed out in future. That is alarming.
According to the Audit Commission, in London some £600 million has been borrowed and in Sheffield the figure is £110 million. When repayments start, the citizens of Sheffield and taxpayers will be repaying at a rate of £25 million a year for seven years. That is about 10 per cent of Sheffield's total budget.
What implications will that have for future public expenditure control? Are these sums included within PSBR figures? 'There is nothing illegal about these arrangements; either future rates will have to take them into account, or some solution will have to be found by the Exchequer.
We have already heard that Opposition Front-Bench Members have decided to bury their heads in the sand about the activities of those Labour councils. A responsible Government cannot do that. Within the next three years, the problem will have to be solved. It remains to be seen whether the sensible introduction of the community charge will be enough to bring proper accountability to Labour councils. Let us all hope so. With local authority current spending up 9 per cent this year, the thought of these irresponsibly financed borrowings adding to that is greatly disturbing. We need to hear louder condemnation from the Opposition. Otherwise, ratepayers will begin to realise that they are as unfitted for government as some of their councillors are for local office.
On the tax side, the statement was encouraging. The buoyancy of non-oil revenues would appear to indicate a strong level of underlying economic activity. I congratulate the Government on their achievement of a PSBR unchanged from the Budget forecast, despite the huge drop in oil revenues.
That raises an interesting point. We have heard that the Opposition plan to include in their manifesto for the next election a pledge to raise £3·5 billion by excess taxation of people whom they describe as very rich. Once again, their thinking seems to be set in old, failed policy.
A recent conference organised by the Adam Smith Institute concluded that there was increasing evidence to suggest that reductions in income tax would lead to a greater overall revenue for the Treasury. The consequences of that should be examined, particularly in relation to the boost it would provide to economic activity and entrepreneurial flair. At a time when our major

economic competitors, regardless of political persuasion, are cutting tax, we need to examine as carefully as possible the feasibility of extensive reductions in rates.
Finally, I should like to congratulate the Government on their resolve to pursue the reform of personal taxation, in particular through the mechanism of transferable allowances.

Mr. Robert Sheldon: We heard a distinguished contribution from the right hon. Member for Worthing (Mr. Higgins). He stated the case, not only for the Treasury and Civil Service Select Committee, distinguished and important though it is, but for all Select Committees when he pointed out that the Government rubbished his Committee's report. That is utterly wrong.
Select Committee members are chosen by the House. Their task is to report to the House and inform us of the views of several individuals, acting together largely, but not always, in a non-partisan way. The Treasury and Civil Service Select Committee has met the finest standards that we have known in that regard. When we look at its work and advisers, it is clear that to diminish them is wrong.
Some years ago, when I was a member of that Committee, I was pleased and surprised that we could pick the best advisers that we could name. We chose them ourselves. In those days we had a rule that, if more than one hon. Member wanted a specialist adviser, that specialist adviser could be selected to help the Committee. We had five specialist advisers and they were the best advisers that we could think of. They all agreed immediately, despite the pittance that they were paid. To abuse them after they have given their distinguished services is utterly wrong, and the Treasury Bench should be aware of that.
Over time, the expertise of the Committee has increased. It does not act over the whole range of responsibilities of the Chancellor of the Exchequer. It does not have to attend Cabinet Committees and perform the many other tasks which the Chancellor must do. Therefore, in the areas for which the Committee has responsibility and in which it has an interest, it becomes extremely expert. Together with its expert advisers, it can question policy in a way that the Chancellor of the Exchequer, however able and well-served he is, cannot question it.
The Committee sees people who are at a much lower level than the people whom the Chancellor would normally see. The members of the Committee see the people who initiated a policy, not those who consider its consequences. They question their assistant secretaries and under-secretaries and find out how the policy came to be adopted in the first place. Then, rightly—continuing the practice that was introduced when I was a member of that Committee—they see the permanent secretary or perhaps the special adviser to the Chancellor and then continue the investigation, bearing in mind the knowledge that they have gained from the people who formulated the policy. They see how the policy was adapted.
Finally, the Committee meets the Chancellor of the Exchequer. I have known Committee members who knew more about a matter than the Chancellor. They used to smile indulgently and the Chancellor looked a bit sheepish. Everyone knew that the Chancellor had got it wrong and that the Committee had got it right. They did not make much of that. It is normal for that to happen when a Select


Committee with good advisers and good members decides to investigate a matter in which it has an interest. I am delighted to see that tradition exemplified by the character, demeanour, behaviour, interest and concern of the right hon. Member for Worthing, who shows his value not only in that Committee but in the Liaison Committee of which I have the privilege to be a member.
I say to the members of the Committee, "Carry on your work." It is clearly wrong for Ministers to show disdain for such a distinguished Committee. Ministers are servants of the House, as indeed is the Select Committee, which also acts on our behalf.
I agree with the comments of the right hon. Member for Worthing and the hon. Member for Truro (Mr. Penhaligon) on the autumn statement. The amount of money in the economy is a worry to us all. I see from the latest figures that, in October, £2·8 billion of new credit was advanced by finance houses, other specialist creditor guarantors, retailers and bank credit cards. The sums involved are substantial, because house prices have increased enormously.
The hon. Member for Stratford-on-Avon (Mr. Howarth) asked the hon. Member for Truro whether he wished interest rates to rise. We must go further back than that. We must understand why house prices rose so enormously. A person with a £40,000 house probably bought it some years ago for £20,000. He may have a mortgage of £10,000 on it and he has £30,000 of collateral. When he walks into a finance house or a bank he is welcomed with open arms. Millions of such people are welcomed with open arms in a way they would never have been years ago. They have collateral that only a few people used to have.
We must ask why house prices have risen. One reason was mortgage interest relief. It makes economic sense, not for the nation—heaven forbid—but for the individual to overhouse himself. As soon as he has managed to reach some equilibrium in the purchase of a house, he sensibly looks to the purchase of a larger and more expensive house to make use of some of his available money. In the rush for these bigger and better houses, prices go up. As the prices rise, the collateral goes up, and as the collateral goes up so, too, does the credit advance. That is one of our major problems.
The north-south divide is causing me increasing anxiety. I am an ex-officio director of the Manchester Chamber of Commerce and Industry. Many of my friends have been associated with it for 20 or 30 years. A claim that I make on their behalf is that they tell things as they are. I always tell them, "I know that you are not all Socialists, but for heaven's sake when you see Ministers please do not get involved in questions of money supply and the public sector borrowing requirement. There are clever people in Government who know all about that sort of thing, but you know what they do not know. You know something about orders, expansion and exports. You go there and you feel that they are cleverer than you. You are wrong. In your area, no one knows more than you." So it was with great pleasure and great delight that, on Thursday of last week, I heard the president of the Manchester Chamber of Commerce and Industry telling it as it is.
We need a wider understanding of his comments, made in the presence of the Prime Minister. The Prime Minister changed her speech either because she knew what he was going to say or as a consequence of what he said.
The president repeated the claims made by the chairman of the Conservative party:.
The north of England has only itself to blame for its problems. He said we suffer from self inflicted wounds which were listed as appalling industrial relations, failure to adopt new technology, left wing councils, and doom merchants. He said that the people in the north are complaining that they are not getting a fair share of the nation's resources.
The president discussed those points one by one at a splendid dinner in the heart of Manchester. He said:
It seems as though we have been giving out some unclear messages. After Tebbit's blast for the North, here is Morris's retort from the regions. Let me take Mr. Tebbit's points one by one. First, industrial relations in Manchester have been traditionally excellent. This is fitting in the city which gave birth to the Trades Union Congress.
I cannot remember a strike taking place in my constituency. The firms are small, largely engineering; they are owned by the person who is there on the shop floor and problems are settled immediately. The trouble is that not as many of those firms exist as existed seven years ago. Just over a third of them are left. They are the small firms that are supposed to have been given encouragement. They are small, medium-tech, highly skilled engineering firms. They should always have a place in any country, whether it is Japan, the United States, France, Germany or wherever. Traditionally, our industrial relations have been excellent.
The president of the Manchester Chamber of Commerce and Industry mentioned the Tory party chairman's second criticism of the north—its failure to adopt new technology—and said:
What an inappropriate criticism for the cradle of the world's first programmable computer, headquarters of the National Computing Centre, ICL and Ferranti, and home of Europe's biggest university campus which is heavily biased towards technical innovation.
The president then mentioned his third attack, on Left-wing councils. I remind the House that that chamber of commerce is not a Socialist grouping. He said:
They are not peculiar to the north west. But frankly we in the business community are making a far better job of partnership with local government than Westminister seems able to do.
The president also said that certain campaigns were a notable example of local business and local authorities working together.
We do not give local government sufficient credit. It is much more efficient than central Government. The advantage of local government is that councillors and employees and anyone connected with it pass by the problems every day on their way to work or on their way home. What do the people in Whitehall see of these problems? They read about them, if they are lucky. No one doubts that there are some silly councils, but there are also some silly civil servants. We must not forget that, nor the fact that there are some useless Ministers, too. We must not assume that the solutions lie in Whitehall, remote from where the problems exist.
We see how the criticisms of the chairman of the Tory party were counterblasted by the president of Manchester chamber of commerce. He said enough to demonstrate his positive belief in and practical commitment to the economic potential of the region. He stated:
We do have a problem and we do believe a change in central Government policy is needed to help us put it right. It is a problem which, if allowed to get worse, will not just


prevent the north west from exploiting its potential but will strangle our national growth. This problem is known … as the north/south divide but it is actually much more specific than that. It is the escalating concentration of the nation's wealth and resources in the south east. To illustrate the problem consider the wealth of the average English person. It is made up of income and capital. Let us take income first, or to use the jargon of official statistics 'personal disposable income per head'. Income in every single region other than the south east is less than the national average.
That is the predominant statistic.
The president continued:
What about the Englishman's capital? The most valuable item most people ever possess is their house … In every other region house values were below the national average.
In the south-east, they are well above the national average. He continued:
We all know that the south east is the richest region. But how many realise that the excess wealth in the south east is now sufficient to balance the deficit in wealth of all the other regions put together?
That is the price we pay for a policy that is geared and motivated towards the City of London, which produces enormous advantages to those who deal with finance and enormous disadvantages to those who deal with the production of manufactured goods.
The problem was analysed 60 years ago by Winston Churchill when he was Chancellor of the Exchequer. Everyone knows about the problems. The trouble is that the City of London appears daily on the Chancellor's doorstep, whereas the remote regions are visited by the Prime Minister and by other Ministers only now and again.

Mr. Alan Howarth: Does the right hon. Gentleman recall that, during the Labour Government of which he was a distinguished member, when regional policy was in its heyday, the northern regions prospered relative to the south and south-east?

Mr. Sheldon: All that I know is that, during the past seven years, my constituency has lost 35 per cent of its manufacturing companies. All that I know is that, seven years ago, pay was higher than the national average, whereas it is now lower. Our unemployment was lower than the national average, and now it is higher. That has happened because of the changes in regional policy.
The president of the chamber of commerce went on to mention the implications of the serious gap between north and south. The House is largely divided between north and south, more's the pity. We used to have the enormous advantage of being a united country. Things that happened in one part of the country tended to happen in another, and people's views in one part of the country tended to be similar to views in other areas. The president said:
The implications of this widening gap for the national economy are serious. We now have severe skill shortages and labour shortages in the south east with high unemployment everywhere else … Now we have a growing inability by executives and technical staff to move between the south east and the regions.
The problem is the price of houses.
The president pointed out to the Prime Minister that, in Manchester,
we search in vain for some indication that Government is adapting its policies to take account of the problem.
There was a time when we addressed ourselves to problems and said that there was nothing insuperable in a problem as important as unemployment. We said, "We cannot be considered as an effective Government unless we can solve

those problems." The Government are not dealing with the problem. They are dealing with the unemployment figures, but not with the problems of unemployment, and their failure in that regard is one of the most severe accusations that can be made against them.
The president mentioned the Government's failure to decentralise the Civil Service and commented on the massive public investment in infrastructure to serve the Channel tunnel and to complete the M25. There is some anger about the fact that all the giant projects tend to be in the south of England. He also mentioned the expansion of London's three airports and said that those projects
will fuel the south east furnace for a generation.
The president went on to say to the Prime Minister:
The reason you and your colleagues hear so many complaints outside London … is because frankly we do not see a willingness to address this problem.
Finally, he quoted from
an illuminating letter from the Parliamentary UnderSecretary of State for Industry … stating the Government's view that London offers the best professional and legal expertise, communications, living and leisure facilities. With that kind of bias, there is no wonder Government is ignoring the vastly superior investment potential of the regions.
It is useless to talk about a population movement given the housing market. When I was a young man and I went to a new town to get a job. I could walk down the street and get lodgings easily. One cannot do that today. There was much more mobility of labour in those days than there is now. There will be an increasing division in the country. Not just its economic implications but its political implications alarm me. Of course, we will get a few more Labour seats in the north, but that is not the most important thing— [Interruption.] Please do not smile at this. This is one of the most serious problems facing us. When I get out of the train in Manchester, I can sense the deprivation there. When I get out of the train in London, I can sense the affluence here. I may be wrong. Millions of people in the north may be wrong. But the Government must take note of the strength of feeling that exists and must do something about it.

Mr. Michael Fallon: One aspect of the Select Committee's report that cannot be faulted is its analysis of public expenditure. I only wish that the Select Committee had been as ruthless in its examination of the reality of public spending as it was in its examination of the rhetoric used by the Government to explain it.
If the autumn statement was the U-turn that it has been painted, I would have welcomed it. On the contrary, all that it seemed to signal was what we already know: that public spending is increasing and, to confirm what we already fear, that public spending will continue to increase. Between 1979 and 1989, the average annual increase in public spending will be about 1·3 per cent. Under the Labour Government, the average annual increase in public spending was only 1 per cent. Indeed, if we exclude receipts from privatisation and the sales of houses and of land, under this Government average annual public spending has grown by about 1·6 per cent a year as against a reduction in public spending of just under 1 per cent during the five years of the Labour Government. The continuing growth in public spending leads me to doubt the Government's new objective of reducing the proportion of gross domestic product consumed by public spending.
I enter three caveats on the Government's objective. First, we have not yet reduced the proportion in relation to the figure that we inherited. When we came into office in 1979, it was 43·3 per cent of GDP; today it is 44·5 per cent. Secondly, the target expressed in the autumn statement is the fairly minimal one of 42·75 per cent by March 1989, or a reduction of only 0·55 per cent over 10 years of Conservative government. Thirdly, it is only a relative target. If GDP growth has been averaging 3 per cent a year since the end of the recession in 1981, the Treasury might ask itself why we cannot expect public expenditure to fall in absolute terms from the total that we inherited in 1979.
There are several reasons for this. First, public expenditure continues to be dominated by public sector pay. We all know that pay and pensions in the public service take a huge slice of public expenditure. What is fascinating, looking back over the past seven years, is that despite all the privatisation that we have achieved, despite the cuts in Civil Service staff, pay restraints across the public sector and the freeze on town hall recruiting, wages and salaries in central and local government consume roughly 27·8 per cent of central and local government spending—almost the same proportion as when we came into office in 1979. In some individual programmes, the percentage is very much higher: 70 per cent of the law and order programme, 60 per cent of the education budget and half of the cost of the National Health Service. We have not yet succeeded in reducing the proportion of public spending consumed by public sector pay.
It should be obvious to all of us that either we impose more central control over the pay arrangements of public service workers, teachers, police, and so on, or we delegate that function to responsible local bodies that can truly reflect the realities of regional labour markets. The middle way—such as we have seen recently with teachers' remuneration and other public sector groups—simply leaves public spending as a whole at the mercy of indirect pressures that Ministers cannot control.
The second reason why we have not succeeded in controlling public expenditure is that so much of it is constructed on the basis of political entitlement rather than continuing need. There are sectional interests, to which reference has already been made. One is the demand for mortgage interest relief on second, third, fourth and fifth mortgages taken out by families. Another is the payment of three quarters of the amount spent on child benefit to people in receipt of no other payment, and thus the payment of a fairly meagre sum to those who need it. The addition of both those sectional interests and their removal could allow a reduction of income tax to 20 per cent—far beyond my right hon. Friend the Chancellor's target of 25 per cent.
As well as the sectional interests, there are important geographical interests. Most dramatically, there is the consistent and continuing over-provision in Scottish spending. The territorial analysis of the outturn for the year 1985–86 shows that spending per head in Scotland is now £2,362 compared with £1,838 in England. That is a discrepancy between England and Scotland of over 20 per cent., and in some programme areas the difference is very much wider. There is 80 per cent higher spending on industrial support in Scotland than in the regions of the

north-east and north-west directly across the border. There is 94 per cent higher spending per capita on housing in Scotland than in England.
As well as over-provision of public spending in Scotland—the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) should particularly note this point—there is also a continuing subsidy not to the poorest regions in England but to the wealthiest region. I refer to the subsidies to London and south-east commuters through the £300 million a year subsidy to British Rail and its south-east services and the £275 million a year subsidy to London Regional Transport. It is nonsense that the most prosperous area of the United Kingdom should be in that part of the railway network that is most heavily subsidised.
Thirdly, public spending is still dominated by the demand-led pressures that have been all too familiar from the early years of the Government—agriculture and social security. The containing of such pressures cannot be left to departmental Ministers alone and cannot be dealt with in the annual Public Expenditure Survey Committee round. We need a more concerted attack, combining more than one Department, if we are to get to grips with pressures in both of those sectors.
If I have emphasised the need for continuing restraints on public spending, it is because I wish to seek much further scope for reductions in the burden of direct taxation. I say that because, by my calculations, 7 million people earn less than £7,000 a year. From next year, they will pay a higher rate of income tax than top earners in the United States. We cannot substantially increase their standard of living in any other way than by reducing the tax burden upon them. If they are in the public sector, given low inflation and continuing pressure on public spending, we cannot expect pay awards to be high. If they are in the private sector, given the surplus of labour and the need to keep down our unit labour costs and improve our competitiveness against our European partners, we cannot expect substantial pay awards. The only way in which we can raise the living standards of low-paid people is by deep cuts in personal taxation.
I am certain that only this Government can provide the necessary cuts in taxation to improve the living standards of the low-paid. The Opposition parties cannot help. They can only suggest nominally increasing their wages by printing more money or borrowing it and leaving them to the mercy of higher inflation. Only this Government, by substantially reducing the burden of direct taxation, can improve the living standards of low-paid people. It is a profound disappointment to me that I am not as sure now that we are on the road to meeting that target as I was before the autumn statement.

Mr. Austin Mitchell: I hope that the hon. Member for Darlington (Mr. Fallon) will forgive me if I do not follow his argument, because it is one that both time and the Government have passed by. It was an interesting argument, and probably relevant in 1979 and to Government policy in 1980, but now it is best relegated to the deep freeze of history. The hon. Gentleman should carry his own glass case around with him if he continues to put such an argument to a Government like this.
I shall not even deal, as I was going to in my immediate anger, with the Chancellor's vicious and rather silly attack on the Treasury and Civil Service Select Committee,


because the right hon. Member for Worthing (Mr. Higgins) has well and effectively put the Chancellor in his place. It is best to treat these things dismissively. It was an unnecessary, cheap, petty, vicious and silly attack, and it was entirely in character. All that we can do is to be dismissive of it. I am afraid that this is the way that the Chancellor is beginning to behave before the Committee, and he treated it with contempt in his personal appearances. That is a measure of the man—the fun Chancellor, lightweight in everything but physical shape. If he wishes to act in that fashion, we shall have to judge him on that basis.
A major change has taken place in Government policy. For example, in 1980 we were told that the exchange rate was a mere residual. Clearly, the exchange rate is now central to Government policy and a central technique of management. In many respects, in managing the economy through interest rates being high and exchange rates being kept as high as possible, the Government have reverted to the norms of previous Governments since the late 1950s, even Labour Governments, except that, unlike previous Governments, they do not have the incomes policy that most previous Governments had to deal with the situation.
The Government have reverted to the depressing norm of British economic policy. However, there has been a major change. If the Chancellor were to look at the Labour party's economic policy in 1983, he would find that he has implemented most of our major recommendations. We urged a 30 per cent. devaluation. There has been a 30 per cent. devaluation since the change in the exchange rate at the end of 1982, and it has not been accompanied by the inflationary consequences that the Chancellor predicted. We urged that public spending should be increased and referred to a public sector borrowing requirement—it should have been called a public sector financial deficit because of the Government's privatisation programme—of about £15 billion. Next year we shall have that, too.
We referred to getting rid of monetary targets like M3. The Chancellor is getting rid of them. It is no wonder that he is getting rid of monetary targets like M3, because he has been unable to control them, as the Government said they would control them when they came into office in 1979. Up to the end of September, M3 had been increasing at an annual rate of 18·2 per cent. Because of the increase in M3, inflation should increase substantially on their terms. Since 1979, M3 has increased by 165 per cent., yet prices have increased by only 65 per cent.
What, then, about the connection that the Government told us would be central to their policy of proper control of the money supply leading to control of inflation? The Government have not controlled money supply, but inflation has not increased as it ought to have done, according to their theories.
The Labour party's manifesto of 1983 stated that the balance should be shifted. We said that there ought to be, not tax cuts but Government spending to help jobs. The autumn statement does exactly that. We wanted more jobs to be created through public spending. Those jobs are now being phased in, in an attempt to get unemployment, on the Government's cooked figures, below 3 million before the general election.
In 1983 the Government said that all those policies were impossible, but they have now become a central element of the Government's policy. They are too little and too late, but now they are there. In 1983, however, we were

told that our plans were irresponsible. I welcome the Government's conversion, but the Chancellor has much further to go on the learning curve upon which he has now embarked.
Either the lady is for turning, or we should redefine the word "turning". These are major turns in the Government's policy. Government policy is now like "Dallas". There was a certain episode in "Dallas" when the curtain was pulled apart, there was Bobby in the shower, and Bobby was alive, after all. We realised that all the preceding episodes were a dream. Likewise, we realise that all the policies that the Government have implemented since 1979 are a dream. Unfortunately, the nightmare consequences of those policies remain. The fact is that 4 million people remain unemployed, manufacturing capacity has been reduced by 30 per cent., and employment in manufacturing industries has been slashed by 28 per cent. The fact also remains that this country is now a net importer of manufactured goods.
Those are the consequences of policies which now, apparently, are a dream and unnecessary. The economics of incompetence have now been replaced by the economics of electioneering. The Government have wasted the oil by investing the revenue from oil in the productive capacity of our overseas competitors so that those revenues will be dribbled back in rentier dividends to keep up the value of the pound and to destroy and weaken manufacturing—just as happened in the Victorian era when the Tory Government paid similar rentier dividends.
The Government have used the oil revenues to bring in imports, thus destroying jobs in this country. They have wasted the growth which we could have had, which would have improved the quality of life for our people. Since 1979 the growth rate has averaged 1·2 per cent. It is pathetic. It is the lowest growth rate in British history since the war. Because of their incompetent and irresponsible management, that is the achievement of this Government. The Government have thrown away the additional growth that this country could have enjoyed.
What is more important, they have wasted the greatest opportunity in British history to expand. Our oil revenues would have allowed us to ride out the balance of payments problems and to invest in manufacturing industry. It was starved of investment. We have wasted that great opportunity. It will never return. The irresponsible economics of this Government have led to the wasting of that great opportunity. They have taken us back to the balance of payments trap in which previous Governments have wallowed. We are sliding back into the balance of payments trap, haplessly and helplessly, but now we are weaker than we were before the interlude of Tory irresponsibility.
There is under-investment in industry, the work force is under-trained and under-skilled and productivity is still too low. It is lower than the productivity of our competitors. All that the Government have done to improve productivity is to take the advice that I give to the Yorkshire county cricket club: to improve its batting average by shooting the last four batsman. The Government have used that technique to fiddle the increase in the productivity figures.
Labour costs are rising far too rapidly and imports are rising far too rapidly. All that is keeping the economy going is a consumer boom. The Government have helped to generate that consumer boom, but it is financed by credit. It will suck in more imports, which will result in a


rapid deterioration next year in the balance of payments. The Government make noises and preach sermons about wage increases, but they do not want them to stop. They are helping to sustain the consumer boom upon which they pin their election prospects next year.
I emphasise what was said by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) about the growing gap between the north and the south. The credit boom is widening the gap between the north and the south. Asset speculation is being fuelled by house prices. Our society is based on the continuous creation of collateral. House prices are increasing, the lending institutions are prepared to lend more money on increased house prices, and the increase in lending on the increased house prices increases the house prices even further, thus making them worthy of more credit. This North sea bubble will burst at some point. It threatens the economic health of the country and it creates a wide gulf between the north and the south. Paper millionaires are being created by house prices in the south. My dog kennel or my garage in London is now worth more than my house in Grimsby. The gulf has now widened to the extent that people cannot move from the north to take jobs in the south simply because they cannot afford to bring their families with them.
The balance of payments problems will cause a major threat to sterling next year. The Chancellor's policy, in the face of that crisis as he described it to the Treasury and Civil Service Select Committee in his usual dismissive fashion, is one of non-accommodation. He says that he will force industry to keep down its labour costs by keeping interest rates high, thus keeping sterling high. Industry will be punished by cheap imports. Sterling will be kept high by interest rates. The markets, if left to themselves—and the Government believe in market forces more than I do—will bring down sterling. The market will be defied only on this question of the exchange rate. It will be defied by the prop of high interest rates. That is the discipline on industry. That is the logic of the Chancellor's thinking. To punish industry, and to stop it increasing its labour costs, he will keep interest and exchange rates high.
That is the policy of non-accommodation and reveals that the Government do not understand industry. They do not understand its dynamics, its organic nature or the painful effort of investing, building business, winning markets and trying to hold and expand those markets. They do not understand how industry is threatened by the crude tactics of high interest rates, higher than those of any of our competitors, and by an exchange rate which threatens the markets which industry is desperately trying to retain.
The Government may understand money and fiddled figures like MO and M3, but they do not understand industry as an organic being. Indeed, they treat it rather like an exercise horse, pummelling and jumping on it, but they never try to encourage it or help to make its way easier in the same way as our competitors help their industries. There is no logic in punishing industry in this way. It is being asked to do what it cannot do. Industry cannot control most of the increases in wage costs that are now taking place. How can it? What is it to do—interrupt production and lose its markets?
Because of the skill bottlenecks, industry will have to pay to attract the skills that it needs. Is it to deny itself those skills? How will it survive unless it goes along with the trend of escalating wage costs? The engine of inflation is no longer industry. The inflation that we have now is not goods inflation; it is asset inflation, and its engine is the rich and not industry. The engine is the financial sector, the City, the company directors who are paying themselves more. The engine is the escalation of asset prices in the south-east, and industry is being punished because the Government will do nothing about all those things. All they do is preach sermons while their friends feather their own nests and get fatter at the expense of the country. The Government then punish industry for the consequences of their action. What kind of logic is that, and what understanding does it betray of the dynamics of industry?
The front line of the economy is the internationally traded sector. We are asking that sector to run in a fierce competition with a ball and chain on each leg. On one leg it has high interest rates, which penalise investment and stop industry making improvements in productivity and research and design and all the other improvements that it has to make to the quality of its products, and on the other leg industry has an exchange rate which prices its goods at an uncompetitive level. The exchange rate subsidises imports and taxes exports. That is how it works, and the Government use that quite deliberately to make a section of society better off through cheap imports. They do that in the hope of winning the next election.
We must divert resources to the emerging balance of payments problem if we are to survive and pay our way in the world. The only way to divert resources to the balance of payments is by a competitive currency channelling investment into industry. The Government are creating a once-and-for-all increase in the standard of living. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, that is being done particularly in the south-east, because it certainly does not have much effect in Grimsby or in any of the huge areas in the north, the heartland areas of Britain.
The Government are creating that once-and-for-all effect through wage inflation and cheap imports, and as a result they are producing all the classic consequences of over-valuation for sterling and consequent harm to industry and its ability to survive in the world. The Government's policy is essentially a holding operation. The Chancellor is trying to bamboozle the electorate with tricks which he cannot repeat and policies which he cannot sustain in order to keep a rickety show on the road until after the election. He is standing in front of the curtain with that marvellous dead-pan Buster Keaton expression at which he is so good and is trying to keep the electorate amused by unsustainable policies in order to distract attention from the disasters behind the curtain. Those disasters are 4 million unemployed, a rising rate of inflation, national decline, an increasingly shabby society and the growing needs of the Health Service and education and all sectors where public spending is important.
The Chancellor's conjuring tricks are a little more public spending and perhaps tax cuts in the Budget, and he will do that until the election comes along. All the auguries are that the election must now be early rather than late, because of the unsustainable nature of the Chancellor's economics. If the Government win the election, the Chancellor plans deflation, still higher


interest rates, a further squeeze and eventual tax increases, because he will have to increase taxes. He will do all those things because they fit the logic of his policy. He will have to increase taxes to replace the revenues that privatised industries are no longer bringing to the Government. Those things will not provide a solution; they are not the way out. They are a holding operation, and that is a disgraceful, irresponsible waste of Britain's time, economic effort, industry and employment.
The Government's policies have manifestly failed, and that is why they are changing them and getting out of policies which are discredited, unacceptable or unworkable. When we form the Government, we will expand the economy. Central to that expansion must be the exchange rate. Since 1968, we have lost 4 million jobs in production industries because we have lost markets at home and overseas. The prime reason for losing those markets is a non-competitive exchange rate. We cannot regain those jobs and begin the work of expansion until we have a competitive exchange rate.
We must regain competitiveness, and we cannot do that by squeeze, freeze and deflation, which is what the Government have been doing, because that penalises investment, reduces confidence and creates the downward spiral that we have had for the past seven years. We can do it only by having a competitive currency and by expansion.
At the end of 1976 we pledged ourselves to the IMF to maintain the competitive position of our manufacturing industries at home and abroad. That is one of the pledges the Government would prefer to forget, but compared to that time in terms of relative export prices the pound is still nearly 20 per cent overvalued against the deutschmark. In terms of the relative export prices in 1976, we would now need an exchange rate of DM 2·40 to the pound in order to be competitive. No wonder we have a £12 billion trade deficit in manufactured goods with the EEC, central to which is our manufactured goods trade deficit with West Germany. Britain is being reduced to an economic colony of West Germany. Our advantage against the dollar, thanks to its overvaluation, has now gone. We are now overvalued even against the dollar. The dollar markets are currently our biggest markets, and because of that change in our relativities our exports will be threatened. That will have disastrous consequences for large sections of our industry.
The pound will come down next year—it may even tumble. It is held up now, not by market forces, a healthy balance of payments, competitive industry, or a naturally dynamic productive economy, but simply by what my right hon. Friend the Member for Sparkbrook rightly described as the crutch of high interest rates. That is the only thing keeping the pound at its present level, and industry of being penalised by that.
It is important that we lift our gaze, not to the next election, on which the Chancellor's gaze is obviously fixed, but to the looming disaster beyond the next election, to the problems that lie ahead in the 1990s. We are hardly surviving now. We have squandered the oil. How will our economy survive in the 1990s as the crisis closes in? Industry is not paying our way in the world now and cannot provide jobs for our people or generate the surplus for public spending, even at the present low and tawdry level.
Once the oil contribution which has kept the Government going fades away, how will we survive? That

is the question. That is the perspective on which we must focus, beyond the Government, with their irresponsible conjuring tricks, trying to dazzle our eyes and win support for the next election, to the looming problem of the 1990s. We must begin the work of rebuilding British industry, of re-expanding and reconstructing our economy before then. To do that we must get rid of the tawdry, fiddling flogging irresponsible opportunism which has replaced the discredited doctrines of monetarism as the Government's central strategy.

Mr. Alan Howarth: I have been impatient that we should make more rapid progress towards stable prices. I have been impatient that we should make more rapid progress towards the full employment which I believe is achievable but only in the context of stable prices. But I have also been impatient that we should make more rapid progress towards the fulfilment of other aspirations of our society—that we should move more rapidly towards a better education system; that we should have better health care; that we should invest more resources in dealing with the problems of law and order.
The political process always has to be a process of the accommodation of competing claims and interests. My right hon. Friends the Chancellor and the Chief Secretary are two voices in the Cabinet. The Cabinet is a much larger body and the Cabinet has a duty to represent and implement the aspirations of a society of 56 million people with all their multifarious demands, with all the differentiated pressures of public opinion and of the institutions of a plural society. It is the particular virtue of this autumn statement that it recognises that reality more fully than ever before.
The autumn statement has been criticised. It was criticised earlier this afternoon by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). The right hon. Gentleman does at least have the virtue of consistency. In 1975, under the Government of which he was a member, the PSBR was £12 billion. That was 10 per cent of GDP. In today's money terms, 10 per cent of GDP would be £35 billion. If one adds to the £7 billion' PSBR which is envisaged for this year the £28 billion of additional public expenditure which the Labour party envisages, one would return to a PSBR of £35 billion, unless the right hon. Gentleman proposes to raise taxes massively. The right hon. Gentleman is at least consistent, but against that background I cannot derive much enlightenment from the criticisms that he had to offer of the autumn statement.
I was more surprised by the rather plaintive tone of the criticisms advanced by the Select Committee. The gravamen of its charge was twofold. It complained that the Chancellor was not sufficiently exact in monetary policy where exactitude is, I think most would agree, impossible to achieve. It railed at him somewhat for his refusal to admit that he has changed policy when, in the essentials of policy, he has not changed. The policy has been consistent in its essential purposes—to bear down steadily on inflation; to create a monetary framework which will tend to reduce inflation; to create a wider framework of economic conditions which will encourage efficiency and profitability and the private sector to take a greater share in our economy.
The critical question has not been about techniques of policy, or the objectives of policy, which have been


consistent; the critical question has always been about the pace at which we should move towards our constant objectives.
There is an economic theory which used to be taught, and possibly still is, in Chicago and Vienna, which says that the process of financial stabilisation could be achieved almost instantly by drastic reductions in public expenditure and by a draconian approach to monetary policy. If the term had not already found a more familiar use elsewhere, I would describe that as the economics of the big bang. I suppose that, in some academic world, the economics of the big bang might produce financial stability, but they would certainly produce political instability. They would produce a kind of economic nuclear winter that not even the most zealous of my hon. Friends have ever desired. My right hon. Friends are politicians and they have recognised, rightly, the need to move gradually.
A number of economic commentators, for whom the holy grail of economic policy is an ever-rising gilts market, have been critical of the autumn statement. They have looked at the various items in public expenditure which have overrun the intended totals. But if one looks at those items of public expenditure which have outrun their originally planned totals, or where the plans have been increased for future years, one sees in every case that the increase in expenditure was effectively inevitable, and, in a great many cases, desirable.
My right hon. Friends have proposed that we should spend an additional £300 million a year on the Health Service. With the availability of new but expensive techniques in health care, with the demands on the Health Service of an aging population, it would be an obsessively narrow view of policy which begrudged such an increase. Indeed, we should all take satisfaction from the fact that there are now 70,000 more doctors and nurses working in the Health Service and 4,500,000 more patients being treated in the Health Service every year than there were in 1979, and that 380 new hospital projects are under way.
My right hon. Friends have been justified in observing that their prudent economic policies have led to the sixth successive year of steady growth and they have been justified in saying that a share of that growth should be allocated to improving the nation's health care. But they have not said that the sky is the limit and they have not shrunk from the arbitrary and difficult necessity of making a judgment, of drawing a line, and saying that we can afford to spend this much more, but there we must set a limit.
There is no use, and there is no decency, in complaining that an extra £1·75 billion is to be spent on the social services. The Government have been right to insist that the British economy must adjust itself to the exigencies of earning our living in the contemporary world. But those necessary transitions carry with them social costs. People have suffered in the process. Again, the only humane and responsible policy is to ensure that we find the resources to take adequate care of people who, through no fault of their own, are hurt in the necessary process of economic restructuring.
Who is to say that the Government have been wrong to commit more resources to law and order? Hardly the Labour party, which in recent months has found it expedient to try to extract political advantage from

castigating the Government for not doing enough on law and order. The reality is that in every western urbanised society the rate of recorded crime has been increasing by 5 to 7 per cent a year over a generation. It is a bedrock duty of Government to provide the resources that are needed to preserve law and order. Therefore, the Government have been entirely right to provide resources for an additional 300 policemen in London and a further 500 in the provinces, to add two extra prisons to the prison building programme, and to find more money for the campaign against drugs and for victim support schemes.
I shall not elaborate the case for investing more resources in our schools and universities, in our housing and on our roads. The case for improvement in all those areas is self-evident.
I congratulate the Government on tackling the areas of overrun in public expenditure where there can have been no reasonable justification. I congratulate the Government on their achievement in negotiating improvements in the common agricultural policy which will provide a greater discipline on the excesses of the CAP than any negotiation that I can recall.
I congratulate them too on their willingness to address at a fundamental level the problems of local authority expenditure. Local government current expenditure has been running at 9 per cent above the planned total. In that area of policy, my right hon. Friend the Chancellor has been a prisoner of an ill-designed system. Every device of bureaucratic ingenuity that can be mustered has been brought to bear to try to restrain local government spending. However, the appetite of local authorities to spend more than we can afford in terms of our national economy remains insatiable and the only remedy is to make local authorities far more extensively and effectively accountable to local electors paying the bills for their expenditure. Therefore, I welcome the Government's commitment to introduce the community charge and to standardise the business rate.

Mr. Penhaligon: The hon. Gentleman is obviously keen on the community charge. One listens to what he says and we can argue the merits of that at some time. However, will he tell the House how he understands the way in which the charge for water and sewerage will be levied in England and Wales when the community charge is introduced?

Mr. Howarth: That would be a diversion from the main theme of my argument. I would rather not be side-tracked into a technical discussion of the alternative methods that might be contemplated for charging for sewerage. The hon. Gentleman offers a sporting diversion but I refuse to rise to the bait.

Mr. Steve Norris: I am sure that my hon. Friend will agree that, if the hon. Member for Truro (Mr. Penhaligon) had taken the trouble to read the Abolition of Domestic Rates Etc. (Scotland) Bill, he would have seen in the preamble specific proposals for how to deal with water rates. They are simple and no doubt as commendable in themselves as the proposals for the community charge.

M r. Penhaligon: The water authorities in Scotland are financed by the local councils.

Mr. Howarth: Cornwall is a long way from Scotland, but even a Cornishman may be willing to acknowledge that lessons can be learned from John O'Groats.
By what criterion should the autumn statement be judged? It should not be judged by reference to some facile definition of monetary policy or monetary conditions. Any such definition would be arbitrary and all too rapidly obsolescent, given the pace of innovation in financial markets and of institutional change. Adherence to any such definition would run the risk of sacrificing the real economy to a totem. I draw assurance and confidence for the future from my right hon. Friend the Chancellor's demonstrable and courageous willingness to increase interest rates when it becomes apparent that monetary conditions have eased too much. Since he raised the basic rate of interest in October, we have duly seen a stabilisation of sterling and a stabilisation of house prices, which are sensitive indicators of monetary conditions.

Mr. Budgen: Would my hon. Friend indicate to the House, in the way that the Chancellor did not, the various items that he would regard as being good indications of monetary and credit conditions being too lax? Since we do not know what the Chancellor regards as his indicators, but my hon. Friend is obviously a party to the Chancellor's thoughts, perhaps he would be good enough to tell us what he regards as important.

Mr. Howarth: The tolerance of the House might soon become exhausted if I were to regale the House with the sort of disquisition that I would be happy to give to my hon. Friend in the Tea Room a little later.
A number of hon. Members have referred to a boom in credit. I respect the point that was made by the hon. Member for Truro (Mr. Penhaligon). There is a problem and we do not know what the proper answer should be. There are difficulties about the controls that the hon. Gentleman advocated—difficulties which I think he recognised. Clearly, it is not an exaggeration to talk of an explosion in consumer credit. That is one indicator that causes me some anxiety—the depreciation of sterling. The surge in house prices—

Mr. Budgen: It should not be disregarded, then.

Mr. Howarth: Perhaps my hon. Friend was not following the thrust of my argument as closely as I might have hoped. I was commending my right hon. Friend the Chancellor for having responded to the symptoms of relative monetary laxity by raising interest rates in the autumn, and I think that we have seen signs that the economy is responding as he and my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) would wish.
I draw assurance, as I hope will my hon. Friend the Member for Wolverhampton, South-West, from the Chancellor's firm commitment to maintain the PSBR at 1·75 per cent of GDP in 1987–88. That is a sanction he has given against any collapse into a laxity that would run the risk of a serious deterioration in the inflationary position.
We should not judge the autumn statement by reference to whether old techniques of policy have been retained in altered circumstances, which seems to be a complaint of the Select Committee. Nor do I think it is appropriate to measure performance on the basis of whether or not previously published targets have been precisely met. The targets set out in public expenditure White Papers are not tablets of stone. They are inevitably, to a degree, negotiating positions. They are cautionary signals to the market. They are also, of course, objectives that the Government should genuinely pursue.
However, given the variables and the genuine unpredictability of economic circumstances and activity, it is absurd to complain if all the targets are not exactly met. I believe that the proper criterion for judgment of the autumn statement is whether the whole configuration of policy tends systematically to reduce public expenditure as a proportion of GDP. By that criterion the autumn statement is vindicated.
It is true that departmental expenditure in 1986–87 has been rising at a more rapid rate than in previous years. However, we heard my right hon. Friend the Chancellor say again today that taking the position over a period of years between 1982–83 and 1988–89 we will see a significant reduction in public expenditure as a proportion of G DP. It is true that the pressures in the later years for public expenditure once again to exceed the targets that have been set will be real and formidable; certainly, there is never a respite in the battle to control inflation and discipline public spending.
It is true that, in the later years, when the Government will receive less assistance in their financing from the proceeds of privatisation, and perhaps eventually no assistance at all, a higher level of expenditure than was originally envisaged will have to be financed. But it would have been absurd not to take advantage of the opportunities offered by privatisation. The merits of privatisation are not simply the merits of offering a relatively easy windfall way of financing public expenditure. As my right hon. Friend explained earlier, the real validity of the privatisation programme is to ensure that those national assets are deployed in the context of market discipline in which they can be most effectively used in the interest of the nation. The Select Committee, in a manner somewhat inconsistent with the generally censorious tone of its report, praised my right hon. Friend the Chancellor for taking advantage of privatisation to redeploy resources in other areas of constructive investment such as capital expenditure, which is raised in the autumn statement by £1 billion a year.
It is encouraging to see that tax revenue is as buoyant as it is and it is perfectly reasonable for my right hon. Friend to assume that, as a result of the growth that his policies are generating, the tax base will be sufficiently buoyant later on to finance the level of expenditure that we shall have.
My right hon. Friend the Chancellor observed in his speech that, by the end of the 1980s, the ratio of public expenditure to national output will be back to the level at the beginning of the 1970s. Progress is slow and hard won. We shall certainly need to go further. We shall need to progress towards the sort of ratio we experienced in the early 1960s, before the Conservative Government left office in 1964, when public expenditure was more like one third than two fifths of GDP. We need to move towards a balanced Budget, by a reasonable definition of the term. We need to move towards radically simpler and lower taxes, towards stable money and towards a situtation in which the private sector takes a far larger share of resources and in its expansion moves us back to full employment.
All these desirable objectives can be achieved, but they will all take time. It is no good not recognising that it was over generations that public policy moved away from the objectives which I have described. Too violent and too hasty a reversal would be damaging and would not be politically tolerable. It is always tempting to see my right


hon. Friend the Chancellor of the Exchequer as Achilles, but he has not overlooked the fact that it was the tortoise which won the race.

Mr. Ken Weetch: I begin my short contribution to the debate by saying that it is becoming a more common observation among the public that very few things in politics are what they seem. So it is with the Chancellor's autumn statement. At the end of the day the statement was nothing to do with economics. Instead, it was a good deal to do with political adventurism at a critical time.
I shall quote from the Financial Times—a newspaper which I am never sure I should be reading. The editorial in the financial section reads:
The Chancellor does not do things by halves … he has responded to the prospect of an election with some blatant pump priming.
That was the editorial comment on the autumn statement.
A vast edifice of complex "economic" argument has been built on the autumn statement, and much of it is not economic; it is blatantly political. The statement was a strong commitment to the Government's determination to pump money into the economy to create a favourable climate to fight a general election. If we take the statement at face value, something can be said on economic grounds. Again, the financial section of the Financial Times summed up the statement:
We are back to the bad old days.
What was the position in those days? First, there was a worsening balance of payments—and the balance of payments will be a real constraint on the economy next year. There was a time when the most important criterion in economic debates was the monthly balance of payments figures. It then disappeared from our debates and it has not been a factor for a long time, but it seems that it is re-emerging. It will be a real constraint, however, in 1987.
When the Minister replies, I hope that he will explain to me the serious deficit on manufacturing account that is now prevalent in the balance of payments. In 1983, for the first time, we had a deficit on manufacturing account in the structure of the balance of payments. The European side of the account is the worst part of the deficit. I hope that the Minister will explain the benefit that the Economic Community has brought to British manufacturing industry. I shall be pleased to hear the explanation, and I shall be listening carefully.
We have a consumer boom that is based on plastic money. It is doing nothing to halt the serious decline in manufacturing industry. On the other hand, it is doing a world of good for the import of foreign manufactures. With between 3 million and 4 million unemployed, a greater proportion of the work force will be absorbed into the service sector of the economy. In parts of East Anglia we are thankful to get jobs even in the service sector, but the serious point—

Mrs. Kellett-Bowman: The hon. Gentleman said "even in the service sector." In some places it is regarded as being extremely important and is relied upon as a growth area of employment. That is the position in places such as Morecambe and Lancaster, the latter being a category A tourist centre. I would not have used the word "even".

Mr. Weetch: The hon. Lady interrupted me at the wrong moment. I was about to say that if we earn our living by providing services as opposed to manufacturing, the service sector can be regarded in a favourable light. The trend is moving too far, however, and many people are being locked into service employment that is low-paid and dead-ended.
One of the serious features of our economy has been the decline in some industries of a highly technical nature. That is a serious phenomenon. An interesting ITV programme is the one that reports job losses and gains. It is notable that jobs are being lost in manufacturing, often in highly skilled sectors, while jobs are being gained in warehousing and in all sorts of odds and ends. It is not that we are ungrateful in these days for jobs in any sector in which they can be found, but the present structural development in our economy is not one of which we can be proud.

Mr. Norris: The hon. Gentleman has spoken about the new balance which is emerging between manufacturing and non-manufacturing employment. Does he agree that, whatever shade of Government we have and almost regardless of the financial policies that are employed, it is inevitable that the technological advancement of the second industrial revolution means that fewer people will be involved in manufacturing and that more will therefore turn their individual attention to other areas of endeavour instead of spending their days sweating in factories? Does he regard that trend in the long-term as an extremely desirable development?

Mr. Weetch: I would agree with that to the extent that productive manufacturing industry will have to support a greater number of employees in the service sector. When I talk to industrial opinion in East Anglia I am told that the trend has gone too far and that we need the political will to put more backbone into manufacturing industry through interventionist polices.
I shall now address the financial part of the autumn statement, which is said to involve a shift in strategy with tax cuts being superseded by increases in public spending. It is being suggesting in today's financial press that we may have both. It is stated that we may have tax cuts in the Budget to come along with public spending increases. I make no further comment about that because we are talking about futures.
When I read the Select Committee's report, the arithmetic suggested that £4·5 billion to £5 billion would be available if public expenditure targets were met. If that money had been directed to producing tax concessions, it would have been enough to bring the standard rate of income tax down to 25p in the pound. It was suggested, however, that £4 billion would be directed to increased public expenditure in the next financial year, which left about £1 billion for tax relief purposes—a smaller sum than was expected.
It is argued that a wise move was made in that tax increases would augment the consumption of foreign imports to the detriment of the balance of payments. It was an odd financial package. Ever since 1979, the Government, with a great degree of self-righteousness, have been preaching financial rectitude. Suddenly financial rectitude goes out of the window, and we can afford all those things previously said to be beyond the pale of public policy. Suddenly we learn that we can have


public expenditure increases of £4·75 billion in 1987–88, and £5·5 billion in 1988–89. That new-found largesse is dismissed or explained by saying that the Government can afford it, and they may even have the money for basic rate tax cuts as well. Given the Government's financial policies since 1979, it is no wonder that people are cynical when they hear, in the autumn statement, that public expenditure increases can be conjured out of nowhere just before the run-up to a general election.
Whenever the Chancellor makes a statement, it must be judged by the contribution that it makes to the long-term soundness of our economy. The Government have not achieved what every Government since the war have aimed at—full employment with a reasonable rate of growth, while at the same time avoiding the evils of inflation. At one point after the war there was relatively full employment but high inflation. We now have low inflation but high unemployment.
We have never been able to achieve the equilibrium of relatively full employment with sound money, an active balance of payments and competitive British industry. We still have not achieved that. The acid test of Government policy will come when the economy is reflated, because we may then once again run into the problem that has arisen so often—inflation. An increase in the rate of inflation is on the horizon now. Hon. Members should make no mistake about it—we shall run into it. There will also be a deficit in our balance of payments. That will take us back to the position decades ago, with no solution in sight.
Despite all the shot and shell and all the suffering that we have been through, we shall have turned full circle and will be back where we started. The Chancellor of the Exchequer plays for high stakes and takes big risks. The City gives the Chancellor of the Exchequer and his antics the benefit of the doubt, because it believes that he will win the next election. If he wins it, the City will be pacified, because the Chancellor will return to the deflation needed to counteract the present attitude of letting things rip.
I am sorry to say that the Chancellor is creating a fast food and ice cream economy that has much froth but no substance. He has encouraged people to run into debt, because our economy is based on plastic money to fuel a spending spree that will create the illusion of prosperity. That economy reminds me of a man with a high temperature whose feverish activity is no guide to his underlying strength.
The Chancellor talks about income restraint. All my life I have supported incomes policies, despite their disadvantages. I know all the arguments against such policies, but in principle it has always been essential somehow to equate the growth in incomes with the real wealth produced by the economy. It is no use the Chancellor preaching restraint to working people while people in the City can earn six-figure salaries for shuffling paper and advising on takeover deals. The Government's economy is one of live now and pay later. The problem is that we shall pay with the continuing decline of the British economy, and that is sad, because we have seen it all before.

Mr. Steve Norris: It is always a great pleasure to speak after the hon. Member for Ipswich (Mr. Weetch), whose opinions I generally respect and listen to with interest. However, I shall try to concentrate on some of the basic, underlying economic facts of life from which

we cannot escape no matter how much we may talk in high economic terms. The autumn statement and the remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) might lead us into some sort of fantasy land unless we remember some basic assumptions. In the interest of brevity, I shall list just three.
I shall start with an assumption which, if I recall correctly, was originally uttered by Abraham Lincoln. I am not sure in which of his famous speeches it appeared, but I am thinking of the aphorism that the poor are not made richer by making the rich poorer. My second proposition is that one cannot discuss the distribution of wealth in any technical detail unless one first concerns oneself with the concept of wealth creation. Opposition Members, in particular, should remember that.
My third proposition is that money cannot be spent on the basis of desirability, unless one has the resources for that. At budget time, the various political parties on the county council of which I was a member used to debate the options. The opposition's arguments for more expenditure were based almost entirely on the concept of desirability. They argued that we should have, and vote for, more day centres, home helps, care in the community, expenditure on education, and so on. The justification for that was that it was desirable. It always seemed rather misguided of some of my Conservative colleagues to try somehow to deny that desirability. That was a foolish way to proceed. Of course such developments would have been desirable, but they should be considered in the context of the ability of the individual, community or country to pay. That is the third maxim that we must keep steadfastly before us.
My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) was interesting and spoke to the point when he discussed how my right hon. Friend the Chancellor has been able to expand expenditure in various areas. The points that he made were well taken, at least by Conservative Members. However, the hon. Member for Ipswich described that increase in expenditure as being profligate. He would be right, and my hon. Friend the Member for Stratford-on-Avon would be wrong, were it not for the most salient factor in the equation, which, as my hon. Friend pointed out, is that increased expenditure is as a smaller proportion of GDP. In other words, we are not squandering resources that we do not have. Instead, we are following the most beneficial of all economic rules, which is that public expenditure can follow in its most desirable forms—which is not to deny the virtues of constant attention to value for money and to prudent economic management—as the tax burden that supports it is capable of being reduced. All the economic benefits of that flow through to industry and to consumers alike.
Let us examine the extraordinary proposition that seems to be at the heart of Labour's economic thinking, that one makes the poor richer by making the rich poorer. The other day I heard the most extraordinary point in a debate, when an Opposition spokesman claimed that this country was suffering from an appalling brain drain. I think that my right hon. Friend the Secretary of State for Education and Science was at the Dispatch Box at the time. The Opposition spokesman said that that brain drain was due to the appalling record of investment on research, or on higher education facilities—I forget the exact nature of the appalling failure to invest of which the


Government were accused, setting aside the logic of the totals, which prove that we are investing more than ever before.
It seemed to have totally escaped the Opposition Member that the real brain drain is likely to be occasioned when more of those with brains engage them on the assumption that the basic top rate of tax in the United States this year will be 28 per cent and the basic bottom rate of tax paid by people in this country will be 29 per cent. Top rates on earnings are still at a penal level of 65 per cent. Those with brains, initiative, enterprise and enthusiasm, who are capable of generating real wealth and real jobs, are most likely to say, "This is a ludicrous environment in which to operate. I am a person capable of generating wealth, and the minute I begin to create that wealth, and particularly the minute I begin to benefit from that enterprise, initiative and risk," as anyone in private business knows, "I am faced with a putative Government who say that now that I have made it, now that I have created those jobs, they want to control my company through worker councils and increased powers for trade unions, and they want to take away my incentive to create jobs." It is the economics of the madhouse and, worse than that, the most primitive form of pandering to the politics of envy—something with which no respectable Opposition Member should be associated.

Mr. Bryan Gould: In the light of the point that the hon. Gentleman is making, no doubt he is as interested as I am in the publication of the Treasury report, which tends to argue against the conclusions that he has enunciated. Will he urge his right hon. and hon. Friends to make sure that the report is published so that we can all judge the truth of the matter?

Mr. Norris: The hon. Gentleman has an advantage over me. It would be dishonest of me to claim that I was as familiar with the report to which the hon. Gentleman refers as he is. Suffice it to say that I am reminded of the fact that it is said that when tax rates on incomes were as high as 98 per cent the tax take was lower than it now is on a lower top rate of tax. Whether or not that is entirely germane to the point that the hon. Gentleman was seeking to elucidate, I work on the primitive basis of the logic of someone who started his own company, largely thanks to the kindness of a major clearing bank, which I had better not name. My heirs and assigns are likely to be eternally grateful to it. At the time, I remember my wife saying to me, "What happens if this all goes wrong?" I said that we had a wonderful Labour council in Oxford, and no doubt it would be able to do something for us.
One of the few incentives to go into business is that when one has created something, it is something that one will own and can keep and, dare I say it—is it so awful? —something that one can enjoy. If the hon. Member for Dagenham (Mr. Gould) or any other hon. Member who has been through the same experience expects me to put in the hours, the effort and the risk in making money to create real jobs for love, I doubt whether my love extends that far. I got hold of two companies, both of which were on the verge of bankruptcy, and they are now thriving businesses employing people.
I should like to refer to the concept of wealth creation and the Opposition's spending plans. I remember the right hon. Member for Sparkbrook getting frightfully agitated

when the Chief Secretary to the Treasury produced a Treasury estimate of Opposition spending plans. I do not know whether the current figure is £28 billion or £35 billion or whether it is likely to be over £40 billion by the time of the general election. However, I know that while the right hon. Gentleman has denied the precise calculations and attempted to dismiss the exercise as merely a political gesture, he has never denied the essential truth that Opposition plans will simply burden the taxpayer through direct tax, borrowing and the printing of money. All those three—the only origins of resource to which a Chancellor has access—will damage businesses and individuals alike.
There may be the argument that that massive increase in public spending will reduce unemployment. To believe that is fundamentally wrong and misguided. Analysing it briefly, surely current unemployment is caused by two main factors. One is demography—that is, the large numbers of young people coming on to the job register compared with relatively small numbers of elderly people coming off the register. The second cause is the second industrial revolution, the process to which I referred in an intervention in the speech of the hon. Member for Ipswich. Under Governments of whatever colour, and at whatever time in their development, fewer people will be employed in manufacturing industry as technology inevitably takes over.
It has always appalled me that the Labour party appears to relish the preservation of those appalling hell holes, such as the great factories that developed after the war, through the 1950s, the 1960s and 1970s, where a man went in in darkness and re-emerged in darkness, having worked in Stygian conditions. Surely all that we want to do is to embrace the opportunity that new technology gives us, to take men out of such an appalling environment. We want to give them the opportunity to work in an infinitely more creative and progressive environment. It is one of the most salient achievements of the Government that since 1983 they have created over 1 million net new jobs in British industry, very few of which involve returning people to the conditions of work to which, it seems to me, Opposition Members wish to return them.
It is a fiction that the unemployed can simply be mopped up by public spending plans, which would make them all net taxpayers. The logic does not work, first, because that false employment places a huge burden on those who are creating real jobs by investing in their own businesses; and, secondly, because there is the combination of trade union nationally agreed rates and extra costs attendant upon creating artificial jobs—the costs of providing the materials that go with the labour. The idea is that one can suddenly fuel a wonderfully vibrant economy by using the national taxation resource to put everyone into a job and make everyone a taxpayer, but it would simply increase massively the burden of tax that each taxpayer would be forced to pay. The equation does not balance.
I believe that the only way to keep the economy moving and to create more real jobs is that outlined in the autumn statement—keeping inflation down and spending within the present proportion of GDP, and lowering it from that level, keeping interest rates as low as possible, rather lower than they are at present, and keeping taxation down because of the burden that that represents for the individual and for businesses. In that respect the


Government have been, until now, extraordinarily successful. I commend my right hon. Friend on his autumn statement, which I believe is a sign of even greater achievements to come.

Mr. Tam Dalyell: In four minutes, I want to ask four questions, to which I hope the Treasury will reply in writing.
First, it is monstrous that the receipts from privatisation should be seen as a reduction in PSBR. What has happened to the shares in the radiochemical laboratory in Amersham? I have been told that they have been mostly dispersed to big institutions and that they have not remained invested on the wide basis that was first intended.
Secondly, the Select Committee and the autumn statement referred to the oil surplus. That has greatly affected those constituencies close to the North sea and there is an expected decline of £500,000. What estimate has the Treasury made of this reduction in oil-related industries on the east coast of Scotland and the north-east?
Thirdly, paragraph 2.09 of the statement contains the defence savings that the Government claim will be made in the Falklands. Politicians should not sit on green Benches and promise reductions when our forces—through the Government's commitment; it is not their fault—are in some jeopardy. We know that Argentina has re-armed. In quantifiable terms, what saving will the Government make?
Fourthly, where in the statement is there provision for money to cover the security services? A record 13·6 per cent rise has been earmarked for the official budget of Britain's intelligence and security services in the new financial year, according to the figures published by the Treasury Supply Estimates on 19 March. The £11 million increase means that the budgets of the services will rise by £32 million. According to The Times of 20 March 1986,
this figure may only represent the cost of salaries and other staff expenditure rather than the global figure for Britain's espionage, counter-espionage and security operations.
The increase could mean pay rises with MI5 and MI6 plus extra staff through reorganisation prompted by Security Commission reports on the services. The budget is described as 'for Her Majesty's foreign and other secret services. The Cabinet office will account for this vote' in the estimates.
Where do these figures appear in the Estimates? Do they appear under the budget of £110 million for other Departments, the Home Office, or the Foreign and Commonwealth diplomatic wing? I am referring to pages 28 and 29 of the autumn statement. I would be grateful to learn, by letter, where those figures arise.
Finally, has the Treasury any control over the competence of the security services? I want to refer to pages 235–238 of the "Pencourt File" by Barrie Penrose, which outlines in detail the muck-up in the mid-1970s when the security services confused the name of my right hon. Friend the Member for Clydesdale (Dame J. Hart) with Mrs. Tudor Hart. Tomorrow, the Treasury will receive a letter from me giving the full details of that mix-up. I have reason to believe that there has been massive incompetence in other cases.
I want to know about value for money in the security services. I have kept to my bargain and spoken for four minutes. My speech was necessarily truncated, but the Treasury has some interest in the matter of security.

Mr. Ian Wrigglesworth: I am grateful to the hon. Member for Linlithgow (Mr. Dalyell) for truncating his remarks. I too will be brief. I want to comment primarily on the two major defects in the Government's economic strategy contained in the autumn statement. However, first I want to say a few words about the Chancellor's speech and conduct.
The right hon. Gentleman revealed a deplorable lack of respect for the House at the beginning of the debate, and not for the first time. That is why there were protests from the alliance Benches. Today was one of a number of occasions when, during major economic debates, the Chancellor has not paid the attention to the debate that many hon. Members believe he should. His attitude to the House was borne out in his snide remarks about the Select Committee and his attack upon its members. That was entirely unjustified and unworthy. A bigger man would not have stooped to those depths. If he wanted to attack the Select Committee, he should have attacked the arguments and not brushed off the report as the product of the advisers to the Committee. That was deplorable, and I hope that the Chancellor will desist from such action in future.
There are two major defects in the autumn statement, both of which relate to the one subject to which the Chancellor paid hardly any attention—unemployment. It is amazing that, in a major debate on economic policy, the Chancellor's opening remarks showed virtually no anxiety about the continuing high level of unemployment. More than 3 million people are now unemployed and it is the job of those of us with high levels of unemployment in our areas constantly to remind the House that there are levels of 40 per cent and 50 per cent unemployment in many wards in the constituencies of Members on both sides of the House. The prime target of the economic policies of any Government should be to ensure that the misery and waste of resources represented by those figures is overcome. It is deplorable that the Chancellor paid virtually no attention to that in his speech.
The first major defect in the Government's policy is in the nature of the demand within the economy that they are stimulating. We have a public sector financial deficit of £14·5 billion.

Mr. Lawson: Rubbish.

Mr. Wrigglesworth: It is not rubbish. It is the forecast in the autumn statement and in the Select Committee report, and it is borne out by many other forecasts. Moreover, it is entirely to be expected.
My point relates not so much to the quantity as to the nature of the demand within the economy. What is wrong is that the Chancellor and the Government are stimulating a short-term consumer boom by allowing wages to plough ahead of inflation and having a very lax monetary policy which is stimulating consumer demand without creating the jobs and wealth in the British economy that we all want to see.
More importantly, the Government are undermining the industrial and economic foundations of this country for short-term political ends. By selective extracts from previous medium-term financial strategies, the Chancellor tries to maintain that he has not changed his economic tune, but anyone who examines the statements and records of Ministers since 1979 knows that a dramatic change in


attitude has been forced on the Government by political expediency and the approaching general election. The hon. Member for Wolverhampton, South-West (Mr. Budgen), who still sticks steadfastly to his monetarist principles, knows that as well as the Opposition and the City do. It is a general election strategy, not a serious economic strategy, and it is undermining the long-term interests of the economy and of British industry.

Mr. Patrick Thompson: Will the hon. Gentleman give way?

Mr. Wrigglesworth: No, I do not have time; the winding up speeches will have to begin shortly.
The second major defect is in the Government exchange rate policy. As our amendment makes clear, and as we have explained on many occasions, we believe that it would help British industry, the British economy and, indeed, the whole of the Western economy if the Government would only do what all their principal Economics Ministers apparently want to do, and certainly what the Confederation of British Industry and the Governor of the Bank of England want to do—that is, to join the exchange rate mechanism of the European monetary system. There has been overwhelming support for that from all sections of industry and commerce, but it has apparently been prevented by the Prime Minister. That is amazing. We are told that the Chancellor himself wants to do it, and it is a sad reflection on his position in the Government that such a major item of economic policy that he wishes to pursue should be rejected by the Prime Minister.
We believe that joining the exchange rate mechanism would mean much greater stability in our exchange rate. It would not enable us to overcome all the pressures on exchange rates—clearly, we should sometimes have to defend the rate at which we joined by increasing interest rates—but we are currently paying a premium in interest rates for the present lack of confidence in our economy. One of the reasons why our interest rates are, on average, 4 per cent above those of our European partners, which is crippling sections of British industry, is that international markets have no confidence in the pound. Confidence would be maintained to a far greater extent if we were full members of the EMS and it is deplorable that the Chancellor has not been able to pursue that course when he apparently wants to.
There is overwhelming evidence that the Government are pursuing a general election strategy rather than an economic strategy. There is a staggering example of that in my constituency. The Government are proposing to set up an urban development corporation to help create jobs and growth in the area, but they then take away the equivalent of 18p on the rates through the rate support grant settlement to provide relief for places such as North Yorkshire, Hambledon and Richmond.
That is entirely a strategy for votes. It has nothing to do with jobs or the economic revival of my area. The same is true for other urban areas. The Government are undermining large sections of British industry because of their short-term general election interests rather than those of the British economy.

Mr. Bryan Gould: Nobody can approach this debate without feeling a sense of obligation to the Treasury and Civil Service Committee and its Chairman. I say nobody, but I must immediately make an exception for the Chancellor of the Exchequer.
The right hon. Member for Worthing (Mr. Higgins) and his Committee deserve to be congratulated on their report and the dignified yet stinging rebuke that they delivered to the Chancellor for his ill-considered remarks. In a sober and restrained way, the Committee produced a conclusion which we, and, I believe, many Conservative Members, are happy to endorse. It concluded that Government economic policy has changed, that, for their own reasons, the Government have chosen to deny that change and that both the change and the denial leave current and future economic policy in an utterly uncertain state.
The Committee's first point is that the obscurity of the autumn statement makes it extraordinarily difficult to treat it as a satisfactory basis for assessing the Government's economic policy. Changes are made but they are neither acknowledged nor explained. That is not an accident. The right hon. Member for Worthing was characteristically generous to the Government on this. I believe that it is not an accident, but part of a general approach to these matters which is perhaps summed up best, in what has become a time-honoured phrase, as being economical with the truth.
The Chancellor and his ministerial team have undertaken a deliberate attempt to muddy the waters and to cover their tracks because they do not want the full extent of their changed policy to be detected by the British people. So far as one can disentangle the changes from the autumn statement and other evidence, in what respect has the policy changed and why does it matter?
The Select Committee provides an excellent guide to the answer to the first question. It makes it quite clear that what has changed is the whole basis, technique and existence of monetary policy. If, for example, sterling M3—so long the favourite broad money measure of the Chancellor and his predecessor—were still the basis of economic policy, as it has risen by 18·2 per cent in the 12 months to September, we should now face an inflation rate of 18 per cent in the forthcoming year or two. I assume that that is not now the Chancellor's prediction.
That rise in sterling M3 is not being responded to with any rise in interest rates, contrary to the policy options taken earlier by the Chancellor and his predecessor. [Interruption.] We have listened to the speeches. I am simply making the point—the Chancellor cannot dispute this—that in earlier days a rise of 18·2 per cent in sterling M3—well beyond the target range—would have been met with a rise in interest rates.
The role of interest rates is another respect in which economic policy has changed. The point of trying to control public spending, on which the Chancellor laid such emphasis in his autumn statement, is to keep interest rates down. That was spelt out in the original medium-term financial strategy. As the Committee points out, the original MTFS states:
It is not the intention to achieve the reduction in monetary growth by excessive reliance on interest rates.


Yet we have had record interest rates without any real impact on the rate of monetary growth. Therefore, the Chancellor can claim consistency neither in his original policy nor in his abandonment of it.
The Committee details a range of other changes, such as changes in levels of public spending, monetary targets, public spending targets, exchange rate policy and even in such arcane matters as rational expectations. It my be perfectly clear why some of those changes took place. There may be good reasons—indeed, I believe there are excellent reasons—for abandoning many of those aspects of the Government's economic policy. But it is a mystery why other aspects have changed.
Why has the Chancellor for the first time announced a planned increase in the real level of public spending? That is what the autumn statement says, but there seems no reason why the previous position should have been changed. The forecast for economic growth is lower than it was earlier in the year. Perhaps, surprisingly, the forecast for prices is also lower. Therefore, a given quantity of public spending should have secured a greater volume of services and inputs. Despite both those factors, the Chancellor has deemed it wise and prudent to increase public spending.
No explanation is offered in the autumn statement of any change that has occurred to justify the change in policy. Therefore, we must be forgiven for providing our own explanation, which is that the Chancellor has simply lost control of events. He has been compelled to accept increases not merely in public spending, against which he had set his face, but in public spending of the least acceptable sort—the very sort castigated repeatedly by him—namely, increases in public spending largely gobbled up by increases in public sector wage settlements. That is what the Chancellor has had to yield to, and now he seeks to make a political virtue of that necessity.
The Chancellor is trying to pretend that what has taken place is not a change of policy and technique, but, miraculously, a change of substance which will change the course of the economy. He implied no change in the Government's policy, but the reverse is true. As the Select Committee report makes clear, the Chancellor and the Government have changed their policy, techniques and instruments of control. What is missing is any real change in substance of the volume and scale required to meet the needs of the economy. [Interruption.] The Chancellor invented and proclaimed his adherence to techniques, instruments, measures and controls. Now they have been abandoned and he is trying to pretend that that abandonment will somehow benefit the economy on a major scale. That is an illusion and the reverse of the truth.
The Chancellor has abandoned his monetarism in the face of political reality. He has no choice. He has abandoned it for reasons not entirely unconnected with the imminence of the general election. We are forced to conclude that, whereas we used to regard the Chancellor as just a simple-minded monetarist, now we must recognise that the monetarist part of that label is no longer appropriate.
Why does all this matter? Why can we not let the Chancellor off the hook and let him say, as perhaps many politicians before him have said, "We all learn from our mistakes. Now we know that we are wrong and we are making an intelligent adjustment to circumstances as we

now see them."? But the very essence of the medium-term financial strategy has always been characterised by its apparent certainty and simplicity.
It is worth recalling just how attractively simple the doctrine was. First, one selected an appropriate measure of the money supply. Then one controlled it. There was no problem about that. One controlled the money supply by fixing a rate of growth at whatever level one chose. Since that fed immediately and automatically through into prices, why not choose zero growth? One then obtained zero inflation. With zero inflation, the economy would suddenly miraculously prosper of its own accord.
That was the simple theory. It was not only simple and certain—here is the real nub of the case—it was immutable. Having set the course and laid down the medium-term financial strategy, the Chancellor, unlike all his wicked and weak-willed predecessors, was going to stick to it come what may. He was not going to be rid of it. That is where slogans such as "There is no alternative" and "The lady is not for turning" came from. The right hon. Lady's reputation is at issue here. Her reputation for inflexibility must be defended. That is why the Chancellor is so unwilling to concede that he has fundamentally shifted course as was well detailed by the Treasury and Civil Service Committee.
In the name of this immutability, simplicity and certainty, immense damage was inflicted on the economy. Another Government and another Chancellor would have realised that the course they had set was doing unacceptable damage, but this Government and this Chancellor persevered. They ploughed on. As manufacturing output and investment fell and 1·3 million jobs in manufacturing industry were lost, as the balance of trade deteriorated and as bankruptcies reached record levels, the Chancellor said, "No, we will stick to our chosen course."

Mr. Budgen: The hon. Gentleman is unfair to the Labour party. Conservative Members sometimes falsely claim that we were the original monetarists. The right hon. Member for Glasgow, Hillhead (Mr. Jenkins), who then represented a Birmingham constituency, was the original monetarist when he was Chancellor of the Exchequer in 1968 and in 1976. The first overt monetarist was the right hon. Member for Leeds, East (Mr. Healey), the present shadow spokesman on foreign affairs.

Mr. Gould: As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, the Prime Minister, in almost a single column of Hansard, has been known to use five different base dates and starting dates for monetarist policy. It is novel to have yet two more added, going as far back as 1968 and 1976, as I understand the hon. Gentleman's rather convoluted remarks.
For all those reasons, and for the reason that the Chancellor proclaimed—the immutability of his policy—and the fact that, in the name of that immutability, he did, and thought he was worth doing, such damage to the economy, he is now—

Mr. Peter Lilley (St. Albans): Give us quotations.

Mr. Gould: I shall not disappoint the hon. Gentleman. He shall have quotations.
For all those reasons, the Chancellor is unwilling to concede that there has been a change. He knows that if he did, he would have to concede that all the damage has been in vain and the whole basis of his policy has been swept


away. It has been replaced by nothing comprehensible or intelligible. It has not yet even been replaced by a new mistake to replace the old ones.
As the basis of the Chancellor's policy has disappeared, even the one achievement claimed for monetarism must now be suspect. It can no longer be chalked up to the Government's credit. The Government claim that their policies have produced a reduction in inflation, yet the policies that were set to produce that reduction have never been applied and have been abandoned as a mistake, as a forlorn hope and as something that could never be put in place. It is difficult for the Government to argue that their policies produced the fall in inflation. That is borne out by the fact that, since 1979, our record on inflation has been worse than the average of the leading OECD countries. In 1979, our inflation rate was 117 per cent of the average for the seven OECD countries. Today it is 144 per cent., and rising.

Mr. Lawson: Quote the figures.

Mr. Gould: I am quoting figures. The Chancellor does not like it because they show that the fall in inflation owes everything to the world recession and the slump in commodity prices, as the Select Committee said. It owes almost nothing—I would say absolutely nothing—to the failed policies of the Government in whose name so much damage has been done.
If, in the light of those facts, the Chancellor still denies that there has been a change, let me try to smoke him out. Let me take as a text the locus classicus—or one of them—of monetarist policy: the speech that he delivered in Zurich on 14 January 1981—the hon. Member for St. Albans (Mr. Lilley), the Chancellor's parliamentary private secretary, asked for some quotations—when he was Financial Secretary to the Treasury. Perhaps he wishes to disown or disavow that part of his career, but we shall give him some quotations. He said:
The heart of our economic policy is the steady deceleration in the rate of monetary growth over a four-year period.
The right hon. Gentleman may not wish to stick to sterling M3, which has increased by 18·2 per cent during the past 12 months. In that case, on former theories, we would be looking at an inflation rate of 18 per cent. What would he like to do? Does he wish to place emphasis on PSL1, on which he was especially keen at the time, although I have not heard him mention it much recently—I should be interested to hear whether he wishes to take that measure—or would he prefer one of the narrow money measures? Would he prefer MO or Ml? The latter was a favourite for a time. How would that square with what he said, which was that broad money is the most useful guide? Do we detect a change there?
Does the Chancellor still believe that this is
a highly complex matter, but that is no reason for getting it wrong, still less for abandoning the task."?
Is that still his position? What is the present basis of his monetary policy? What is the assumed connection between any monetary measure the Chancellor cares to select—I am not fussy about which one he selects—and the assumed or predicted rate of inflation? Unless we know that, we cannot know what has happened to what he said in 1981 was,
the heart of our economic policy".

The Chancellor said in that speech that the fall in monetary growth was to be achieved by a
steady reduction in the real level of total Government spending.
When was that target abandoned? Why was it abandoned? Why should anyone believe the Government's plans for public spending in the light of the Chancellor's statement in that speech that there was
a steadily declining trend, until by 1982–83 it will be 4 per cent lower than in 1979–80."?
Was not the whole point of reducing Government spending the hope that interest rates would be kept down and that there would be no crowding out? Why do we have record real interest rates—the highest in our history and among the highest in the advanced world—and why are our real interest rates twice as high as those of West Germany? Why are we lumbering our industry with such a ridiculous burden? Will the Chancellor give us an answer? He must know.
Let us try another quotation about the exchange rate. In 1981, the Chancellor said:
The Government has no exchange rate policy as such.
Is that still the case, in view of his repeated statement that he would now resist any further fall in exchange rates and what one assumes to be his preference for joining the EMS although, clearly, he cannot carry his Prime Minister with him? If so, when did the change take place? Is that another change? Can the Chancellor be happy with the situation when the pound is now, as my right hon. Friend the Member for Sparkbrook said, at its lowest level in the trade weighted index, can only be held at that level on the basis of a severely deflated economy—the classic definition of a weaker currency—is bolstered by record borrowing from the reserves, part of which has been spent, has nevertheless produced a rapidly deteriorating balance of trade and is now, as the Prime Minister concedes, too weak to be taken into the EMS and is, above all else, supported by record real interest rates? Is that what the Chancellor believes is an acceptable outcome of seven years of a Government dedicated to what is laughingly called sound money? Is that the apotheosis that the Chancellor so ardently desired?
The Chancellor went on to say that as a result of what had then been done in the name of monetarism—those who remember 1981 and have seen the graphs and the Chancellor's unwillingness to look at any period of government before 1981 will find this a rich irony—
British companies are becoming more efficient, leaner, tauter, fitter, and more productive.
That is a remarkable statement. Much could have been forgiven if it were in any real sense true. How can it be true when manufacturing output is 7 per cent lower than it was in 1979, when hundreds of thousands of jobs are lost and investment is down?
Let us be fair to the Chancellor. He may want to avoid looking at the economy in the round; he may want to look at companies as individual entities. Will he nominate those of our main industrial rivals against which we have made up ground in terms of productivity, efficiency, unit labour costs and competitiveness? I do not dispute that he may be able to find some, but I wonder whether he would find them among the ranks of our important rivals such as Japan, Germany and the United States. Where would such examples lie?
Let me give the Chancellor a wide choice. Will he choose just one of the various indices of competitiveness that the Treasury sometimes uses and publishes? I do not


mind which it is—relative export prices, relative import prices, terms of trade, or relative labour costs. Which of any one of those shows an improvement in our competitiveness since the first quarter of 1979? I challenge him to nominate one. If he cannot—and I know that he cannot—I hope that we shall hear no more of that canard trotted out repeatedly and erroneously by Ministers and other Government spokesmen.
It is significant that we have no answers from the Chancellor or the Chief Secretary. It may be that they are adhering to the policy of being economic with the truth. It may be that they are too busy and that their minds are filled with fantasies and inventions about our spending plans. Those fantasies have been totally discredited by the Institute of Fiscal Studies and Phillips and Drew, which have castigated back-of-the-envelope figures. However, this is a debate about the autumn statement, although I would not be surprised if the Chancellor would dearly like to shift the focus.
The real reason why there is silence on the Government Benches is that they are holding their breath. They know and fear that the simplest gust of wind will bring the whole structure, the whole card house, down. The Chancellor knows that sooner or later it will all collapse because, with his abdication from monetarism, he now runs an economic policy that has no visible means of support.
The Chancellor has one last shot in his locker, if he is to ward off nemesis in the form of a sterling crisis, or a balance of payments crisis, or the blowing up of the consumer boom. That one last, desperate throw is tax cuts. Today the Chancellor affected a pose of fiscal rectitude, but I would lay money on there being some tax cuts in the next Budget, which would go some way towards redeeming the promise that has been made every year for seven years that tax cuts are on their way.
Tax cuts might reverse to some small degree the increased tax burden for the overwhelming majority of families, but they would further stimulate the consumer boom and worsen the balance of payments without doing anything for unemployment, and they would be completely unsustainable for more than a few months. If the Conservatives won the next election, they would have to be reversed as soon as the general election was out of the way. Tax cuts could be made only at the price of further violence to the very policies that the Chancellor has paraded for so long as being at the heart of his economic policy. Tax cuts would be the last desperate throw of a Government who know that the game is up and know, as they go into an election year with more than 3 million people unemployed, that they do not, in the words of the chairman of the Tory party, deserve to be re-elected. They will not be re-elected.

The Chief Secretary to the Treasury (Mr. John MacGregor): I congratulate the hon. Member for Dagenham (Mr. Gould) on his appointment to his new post and welcome him to our debates. I shall have a word to say later about his speech and about what he has said elsewhere. As this is my first opportunity since the autumn statement to speak about it in the House, I shall concentrate my opening remarks on the area for which I have particular responsibility, public expenditure.
The hon. Member for Great Grimsby (Mr. Mitchell) accused the Government of major turns in Government policy and of increasing public spending. He described it

as the economics of electioneering. On the other hand, my hon. Friend the Member for Darlington (Mr. Fallon) emphasised the need for continuing restraint and regretted that we had not made more progress. I should like to begin by reassuring my hon. Friend and disabusing the hon. Gentleman of his notions.
In his speech my right hon. Friend the Chancellor of the Exchequer said that our consistent view has been that the state takes too much of the nation's income and that our consistent objective is that public expenditure, as a percentage of GDP, should be reduced. My right hon. Friend conceded that some of the targets that we have set have, in the event, proved to be too ambitious.
To reverse public spending trends to achieve the objectives that we have set ourselves requires a constant and firm determination to turn back the inexorable pressures of the 1970s towards higher public spending. Some of them are demand-led pressures, as my hon. Friend the Member for Darlington pointed out. He referred to agriculture and social security. My hon. Friend will be aware that in agriculture the real demand-led area is the common agricultural policy, not the domestic agricultural programme. He will know of the strenuous efforts of my right hon. Friend the Minister of Agriculture, Fisheries and Food—capped with great success during this week, in very difficult circumstances—to restrain the growth of the CAP. I shall deal later with social security.
I have two points to make about public expenditure as a whole. The trends show that we are succeeding. They also show that the Opposition are a constant reminder that without the disciplines that we have continuously imposed both the total and the proportion of the gross domestic product would very rapidly shoot up again.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) never likes to be reminded that when his party formed the Government they increased expenditure, in real terms, by 12 per cent in one year. With its £28 billion pledge, the Labour party looks as though it will repeat precisely that mistake if ever again it is given the chance to form a Government. With programmes of that sort, it will certainly not form another Government.
If it were the case, as the hon. Member for Great Grimsby contends, that the Government's public expenditure policy has changed this year, one would expect to be able to detect a break in trend—or example, expenditure rising, instead of falling, as a proportion of the gross domestic product or the growth rate accelerating after it had been decelerating. That is not what one finds. As my right hon. Friend explained at the time of the autumn statement, and again today, the rate of increase in public spending, in real terms, as measured by the combined spending of central and local government—including, as the Select Committee on the Treasury and Civil Service would wish, debt interest but excluding the proceeds of privatisation—shows that progressively the rate of increase has been coming down.
It is worth repeating the figures, because the constant hubbub from the Opposition when my right hon. Friend the Chancellor was making his speech probably meant that most of my hon. Friends did not hear all that he said. The figures are quite clear. They went from 3 per cent in the decade to 1978–79 to 2¼per cent in the last Parliament, and to 1¾ per cent so far in the present Parliament. Far from reversing that trend to slower growth, our plans seek to extend it.

Mr. Fallon: Will my right hon. Friend give way?

Mr. MacGregor: I have a lot to say in response to the debate and a short time in which to say it, so I hope that my hon. Friend will not mind if I do not give way.
If one looks for a break in the trend one can find it, but it was in 1982–83 that the rise in public spending as a proportion of GDP came to an end. I concede that it rose up to that period for a whole variety of reasons which I do not have time to go into now, but in the four years since then the proportion has progressively fallen.
With spending planned to grow significantly more slowly than the economy as a whole, the downward trend will continue, so that by 1989–90 public spending as a proportion of national income will, as my right hon. Friend said, be back to levels last seen in the early 1970s. We have succeeded in making a break with the past and reversing the trend. In the 1970s public spending grew faster than the economy, but now the reverse is true, and this autumn statement accelerates that process.
Some Opposition Members have extended their search for the non-existent U-turn into the detailed programmes. That search will be equally unproductive. Certainly the autumn statement makes additional resources available for priority programmes such as education, health and roads, but these are hardly new priorities.
One advantage of this steady commitment on public spending coupled with a rigorous search for economies is that we have been able to increase spending in the areas to which we attach the greatest priority, while at the same time ensuring that public expenditure has never regained the stranglehold that it once had on our economic life. It is important to look at some of the examples. Looking at our record over the past six years, we see that in education spending per pupil is now at an all-time high and that the proportion of 18 and 19-year-olds entering higher education and the number of graduates are also at record levels.
Spending on the National Health Service has risen by over 24 per cent in real terms since 1978–79, and capital spending on the NHS has risen over 30 per cent. On law and order programmes, spending has risen by nearly 40 per cent in real terms since 1978–79. Capital spending on housing renovation has risen by nearly 40 per cent., and local authorities and new towns improved and converted nearly 100,000 dwellings last year. Over 600 miles of motorways and trunk roads have been completed since we took office and spending on them has risen by more than 25 per cent.
These are all programmes to which we have given priority in the autumn statement and the figures that I have just given demonstrate that we have been consistent throughout and that public spending as a proportion of national income has been coming down. This autumn statement continues the emphasis on those priorities. We are substantially increasing provision for education and, as the House knows, we have made a generous offer of £½ billion next year for teachers' pay. That offer was made in order to get value for money and is offered in return for the right terms, conditions of service and a salary structure in the teaching profession. Spending on hospital and community health services will be up by 2¼ per cent in real terms next year.
The hon. Member for Great Grimsby said that this was an election spending spree, but that increase in real terms is exactly the same as the increase that we planned for this

year. We will spend over £700 million more on the police in each of the next two years. By 1987–88 the number of uniformed police will have risen by 10,000 since we took office in 1979. This is not a pre-election spending spree. It is consistent with our progress in the past.
One point to which the Select Committee on the Treasury and Civil Service has drawn attention in the past, but to which it did not draw attention this year, is the balance between capital and current spending. Perhaps this year the Committee did not focus so much on that because it noticed that here again we have been consistent and that our contrast with the Labour record is marked. Since we came to office public sector spending has remained broadly level in real terms, despite our deliberate decision to switch the emphasis from the public to the private sector in the provision of new housing.
The autumn statement shows that we are planning to increase capital expenditure by nearly £1 billion over our previous plans in each of the next two years on roads and prisons, and, despite the switch of emphasis in housing provision, we are making an extra £450 million available next year. We have a £3 billion building programme for the NHS, covering more than 380 major schemes, 110 of which should be completed by 1990.
The interesting point is the contrast between our record on that basis, despite all the attacks that we hear from the Opposition from time to time, on capital spending and on the infrastructure, and theirs. Despite the growth of expenditure under the last Administration, they had to cut capital spending in key areas. Within our restrained totals we have almost identically increased capital spending in the key areas by the same percentage.
The right hon. Member for Sparkbrook referred to the increase in social security spending, which is a marked feature of the autumn statement, and described that as a product of unemployment. [Interruption] It is typical of the right hon. Gentleman to raise a point and then to carry on talking when it is answered. He does not want to hear the answer.
The usual full analysis of expenditure by benefit and type of claimant will be published in the public expenditure White Paper, but it is worth noting that the major factors for the increase that we have announced are an increase in take-up of means test benefits among the long-term sick and disabled and single parents. Average amounts paid in housing benefit to people in and out of work are also increasing, as is spending on family benefits, reflecting among other things a higher birth rate and more children staying on at school after 16.
There is also a continuing increase in the level of take-up of benefits among the existing unemployed. When the right hon. Gentleman puts the burden of the increased expenditure on the unemployed factor, it is worth remembering that most of the social security budget is spent on the elderly, the sick and disabled and on families. Only about one sixth of the social security programme is spent on benefits for unemployed people. As my right hon. Friend the Secretary of State for Social Services has pointed out clearly, our record on increases in benefits since 1979 is good. We have had to take into account the demographic trends and the fact that many people live longer and need such benefits.
If I had had time, I would have spent a few moments on the speech of the hon. Member for Truro (Mr. Penhaligon). I want to contrast our responsible spending with the programmes of other parties. The hon.


Gentleman was on his own when he rose to speak and he missed a rare opportunity. He could have said what he liked about the alliance's spending plans without fear of contradiction or of being muzzled. He missed that opportunity, but not all his colleagues have done the same.
According to The Independent last month, the Social Democratic and Liberal parties have been costing and revising what 1 have to describe as a pledge-heavy document, "Partnership for Progress". The right hon. Member for Plymouth, Devonport (Dr. Owen) has, we are told, been laying down the law. I noticed that even while "Partnership for Progress" is at the printers, some of the hon. Friends of the hon. Member for Truro have been blowing a hole in the Social Democratic party's plans and have added, on its own estimate, £.1·5 billion in a pledge to increase pay in the NHS. We shall look forward to seeing continuing disputes between the two parties as they try to grapple with the problem of responsible public spending.
The hon. Gentleman made one fair point. At least the Liberals and Social Democrats have put down an amendment tonight. The hon. Gentleman drew attention to the fact that the official Opposition have not. No wonder. They are terrified of' a focus on their policies.
My right hon. Friend the Member for Worthing (Mr. Higgins) urged strongly, both in the Treasury and Civil Service Committee's report and in the debate, that the matters relating to monetary policy in particular should be discussed on the Floor of the House. I agree. That is precisely what my right hon. Friend the Chancellor was endeavouring to do this afternoon in giving a detailed response to the Committee's report. It was, of course, a strong rebuttal in places, but my right hon. Friend the Member for Worthing is a fair man and I am sure that he will recognise that, as the report criticises the Chancellor, the Chancellor has every right to give his response. His was a detailed response, because he wanted to take the report seriously and argue it point by point.
If my right hon. Friend and the House study the reply, they will find it a fair, reasonable and persuasive response, but they will have to read it, because of the shameful behaviour of the Opposition, led by the Opposition Front Bench. Every observer outside the Chamber must have concluded that theirs was kindergarten behaviour, except that would be unfair to kindergartens. The Opposition did not focus on a single serious issue for one moment during my right hon. Friend's speech. They treated the key economic policy matters as frivolously in this debate as they do in their own internal party discussions on economic matters.
It is fairly clear that the hon. Member for Dagenham wrote his speech before the Chancellor spoke or, alternatively, he could not have heard the Chancellor, because he concentrated on the frivolous aspects of the matter, as did his hon. Friends. He totally failed to see that the Chancellor had responded to his speech in full before he made it—[Interruption.] That is what observers will have seen.
I find the Opposition's attack on these matters extraordinarily hypocritical and schizophrenic. They cannot make up their mind whether the modest increases in spending that we have announced are reckless and a sign of a pre-election spending spree or whether they are totally insufficient. On looking at the Opposition's plans, one must conclude that they would spend a great deal more. They criticise the level of interest rates and inflation. The

hon. Member for Dagenham said that we had benefited on inflation this year from oil and falling commodity prices. It is important to look comparatively at the record of inflation over a period of time.
If one compares the record of the last Labour Government and the record since 1979 to the present day, not just in absolute terms, but relative to either the major seven competitors or the rest of the EEC, one finds that under the Labour Government the difference between their inflation level and the average of the major seven was 6·9 per cent., compared with 2·1 per cent under this Government. Even more strikingly, when compared with our European competitors the average was 4·5 per cent during the Labour Government compared with 0·1 per cent now. That is a clear indication of how our policies on interest rates and monetary policy have made a big difference, comparatively, to all that we saw under the Labour Government.

Mr. Gould: I feel justified in intervening, since the inflation rate is the sole achievement that the Government can claim in their economic policy. Does the right hon. Gentleman dispute that our inflation rate today is higher as a proportion of the OECD seven average than it was in 1979 when the Government took office? Does he dispute that, yes or no?

Mr. MacGregor: What matters is the difference that I have just been describing. I utterly reject the hon. Gentleman's statement that inflation, although a key achievement of the Government, is the only one.
The hon. Member for Dagenham wrote a fascinating article in The Times last year. He said:
To say that the Labour party's decline might be terminal has become a commonplace … To lay this bare is not to hasten the decline. A proper understanding of what is happening offers the only chance of doing something to halt a possibly fatal process. Within our geographical and ideological laager a kind of siege mentality prevails. Thus, it is seriously asserted that the obstacle to majority support in the country is that we are not Left-wing enough. It is believed that one day the scales will drop from the eyes of the masses and that a demonstration on the Floor of the Commons will bring the triumph of Socialism closer.
It is not really a question whether the debate in the Labour party needs to be fought out in that increasingly isolationist way. If it were, it would not matter to the rest of the country. However, we are seeing that that laager-type mentality is being operated in practice in Labour-controlled authorities involving a not inconsiderable proportion of total local authority spending. The hon. Member for Dagenham knows perfectly well that he was putting his finger on that sort of approach, because he was aware that it could cause increasing unpopularity for the Labour party in the country, but, much more serious, those are the sorts of policies that would be operated if the Labour party ever got the opportunity to return to government.
Labour authority leaders must be worrying the right hon. Member for Sparkbrook enormously. He knows that his colleagues are locked in private discussions. At least, that is what we are told in the press. He must be aware of the irresponsible approach of Labour councillors to public spending. They are piling up commitments for future ratepayers by their creative accounting. Labour controlled authorities continue to spend in the most frivolous fashion, and the right hon. Gentleman must know that the approach that is being adopted by Labour councillors


justifies entirely our attack when we say that in practice a Labour Government would not be able to control public spending.
The figure now in circulation is £28 billion, and it has not been challenged seriously. That is the sum to which a Labour Government would be committed, and other commitments are being added to it. That figure destroys the credibility of any attack by the Opposition on the Government's policies on interest rates and inflation, and all the policies that are set out in the autumn statement.

Mr. Gould: As the Minister has been prepared to range so widely to avoid scrutiny of the Government's policy, perhaps I should have foreseen that he would introduce Labour spending yet again. Has the right hon. Gentleman read the study of our programme by the Institute for Fiscal Studies? Does he know what conclusion the institute reached, and does he accept it? Its conclusion is that he has invented figures, or that they are nothing more than back-of-envelope figures.

Mr. MacGregor: I have read the study in full and that which the hon. Gentleman asserts is not what it states. The study makes it clear that the Government's costing is entirely accurate and is not based on back-of-envelope figures. Secondly, it says that some of Labour's commitments are not absolutely clear. On many occasions I have offered the right hon. Member for Sparkbrook the opportunity to tell us which commitments he will take off the list. Some signs were given in a previous debate that commitments that are dear to the hearts of Labour Back Benchers are now being dropped.
The hon. Member for Kingston upon Hull, East (Mr. Prescott), who is the Opposition's employment spokesman, has said that there are commitments that are not "fully there" of £6·6 billion, which he said should be removed from the overall commitment. That statement was negated by the hon. Member for Oldham, West (Mr. Meacher), the Opposition's spokesman on social security matters, who added more than an equivalent sum to the figures that do not come within the commitment of £28 billion.
If we consider what is being done by Labour councils, it is no wonder that Opposition Members are so sensitive. The hon. Member for Dagenham stated that inflation was the Government's one achievement for which we could claim credit. Accordingly, I turn to the record for the past five years, which the autumn statement will continue. Since 1981, growth has averaged 3 per cent., manufacturing investment has averaged 4 per cent. and take-home pay for a married man on average earnings has increased by 17 per cent. compared with a drop of nearly 1 per cent. under the previous Labour Government.
As has been said, the Government's record on inflation is a major achievement. The hon. Gentleman talks about interest rates, but he should recognise that there are other factors that are extremely important to companies. The rate of return for all industrial and commercial companies rose to 12 per cent. in 1985, the highest since 1964, and treble the rate in 1975. The rate of return on manufacturing in 1985 was 7 per cent., the highest percentage since 1973. Companies' liquidity and profitability are returning to the levels that we all want to see. These elements can be set against the impact of inflation.
The autumn statement is consistent with what we have done in the past, which has made possible the achievements to which I have referred. It will enable us to secure balanced growth again next year. It is in the most remarkable contrast with the policies of the Opposition, which is why they will never get the opportunity to implement them.

Question put, That the amendment be made:—

The House divided: Ayes 22, Noes 268.

Division No. 44]
[9.59 pm


AYES


Ashdown, Paddy
Owen, Rt Hon Dr David


Beith, A. J.
Penhaligon, David


Bruce, Malcolm
Ross, Stephen (Isle of Wight)


Hancock, Michael
Shields, Mrs Elizabeth


Howells, Geraint
Steel, Rt Hon David


Hughes, Simon (Southwark)
Thomas, Dafydd (Merioneth)


Johnston, Sir Russell
Wallace, James


Kennedy, Charles
Wigley, Dafydd


Kirkwood, Archy
Wrigglesworth, Ian


Livsey, Richard



Maclennan, Robert
Tellers for the Ayes:


Mallon, Seamus
Mr. David Alton and


Meadowcroft, Michael
Mr. John Cartwright.


NOES


Aitken, Jonathan
Fraser, Peter (Angus East)


Alison, Rt Hon Michael
Freeman, Roger


Ancram, Michael
Gale, Roger


Arnold, Tom
Galley, Roy


Aspinwall, Jack
Gardiner, George (Reigate)


Atkins, Robert (South Ribble)
Gardner, Sir Edward (Fylde)


Baker, Rt Hon K. (Mole Vall'y)
Garel-Jones, Tristan


Baker, Nicholas (Dorset N)
Gilmour, Rt Hon Sir Ian


Batiste, Spencer
Glyn, Dr Alan


Beaumont-Dark, Anthony
Goodhart, Sir Philip


Bellingham, Henry
Goodlad, Alastair


Benyon, William
Gorst, John


Best, Keith
Gow, Ian


Boscawen, Hon Robert
Grant, Sir Anthony


Bottomley, Mrs Virginia
Greenway, Harry


Bowden, A. (Brighton K'to'n)
Gregory, Conal


Brooke, Hon Peter
Griffiths, Sir Eldon


Brown, M. (Brigg &amp; Cl'thpes)
Griffiths, Peter (Portsm'th N)


Browne, John
Grist, Ian


Buchanan-Smith, Rt Hon A.
Ground, Patrick


Buck, Sir Antony
Grylls, Michael


Budgen, Nick
Hamilton, Hon A. (Epsom)


Carlisle, Rt Hon M. (W'ton S)
Hamilton, Neil (Tatton)


Cash, William
Hampson, Dr Keith


Chapman, Sydney
Hanley, Jeremy


Chope, Christopher
Hannam, John


Churchill, W. S.
Harris, David


Clark, Sir W. (Croydon S)
Harvey, Robert


Cockeram, Eric
Havers, Rt Hon Sir Michael


Colvin, Michael
Hawkins, Sir Paul (N'folk SW)


Conway, Derek
Hayhoe, Rt Hon Barney


Coombs, Simon
Hayward, Robert


Cope, John
Heddle, John


Cormack, Patrick
Henderson, Barry


Cranborne, Viscount
Heseltine, Rt Hon Michael


Crouch, David
Hickmet, Richard


Dorrell, Stephen
Hicks, Robert


Douglas-Hamilton, Lord J.
Higgins, Rt Hon Terence L.


Dunn, Robert
Hind, Kenneth


Durant, Tony
Hirst, Michael


Dykes, Hugh
Holt, Richard


Eyre, Sir Reginald
Hordern, Sir Peter


Fallon, Michael
Howard, Michael


Favell, Anthony
Howarth, Alan (Stratf'd-on-A)


Fenner, Dame Peggy
Howarth, Gerald (Cannock)


Fookes, Miss Janet
Howell, Ralph (Norfolk, N)


Forman, Nigel
Hubbard-Miles, Peter


Forsyth, Michael (Stirling)
Hunt, David (Wirral W)


Forth, Eric
Hunt, John (Ravensbourne)


Fox, Sir Marcus
Hunter, Andrew


Franks, Cecil
Jackson, Robert






Jenkin, Rt Hon Patrick
Price, Sir David


Jessel, Toby
Prior, Rt Hon James


Johnson Smith, Sir Geoffrey
Proctor, K. Harvey


Jones, Gwilym (Cardiff N)
Raffan, Keith


Jones, Robert (Herts W)
Raison, Rt Hon Timothy


Joseph, Rt Hon Sir Keith
Rathbone, Tim


Kellett-Bowman, Mrs Elaine
Rees, Rt Hon Peter (Dover)


Key, Robert
Rhodes James, Robert


King, Rt Hon Tom
Ridsdale, Sir Julian


Knight, Greg (Derby N)
Rifkind, Rt Hon Malcolm


Knight, Dame Jill (Edgbaston)
Rippon, Rt Hon Geoffrey


Knowles, Michael
Roberts, Wyn (Conwy)


Knox, David
Robinson, Mark (N'port W)


Lamont, Rt Hon Norman
Roe, Mrs Marion


Lang, Ian
Rossi, Sir Hugh


Latham, Michael
Rost, Peter


Lawler, Geoffrey
Rowe, Andrew


Lawrence, Ivan
Rumbold, Mrs Angela


Lawson, Rt Hon Nigel
Sackville, Hon Thomas


Lee, John (Pendle)
Sainsbury, Hon Timothy


Leigh, Edward (Gainsbor'gh)
Sayeed, Jonathan


Lester, Jim
Scott, Nicholas


Lewis, Sir Kenneth (Stamf'd)
Shaw, Giles (Pudsey)


Lilley, Peter
Shaw, Sir Michael (Scarb')


Lloyd, Sir Ian (Havant)
Shelton, William (Streatham)


Lloyd, Peter (Fareham)
Shepherd, Colin (Hereford)


Lord, Michael
Shepherd, Richard (Aldridge)


Lyell, Nicholas
Silvester, Fred


McCrindle, Robert
Sims, Roger


McCurley, Mrs Anna
Skeet, Sir Trevor


MacGregor, Rt Hon John
Smith, Sir Dudley (Warwick)


MacKay, Andrew (Berkshire)
Soames, Hon Nicholas


MacIean, David John
Speed, Keith


McLoughlin, Patrick
Speller, Tony


McNair-Wilson, M. (N'bury)
Spicer, Jim (Dorset W)


McQuarrie, Albert
Spicer, Michael (S Worcs)


Madel, David
Squire, Robin


Major, John
Stanbrook, Ivor


Malins, Humfrey
Stanley, Rt Hon John


Marlow, Antony
Steen, Anthony


Marshall, Michael (Arundel)
Stern, Michael


Mates, Michael
Stevens, Lewis (Nuneaton)


Mather, Carol
Stewart, Allan (Eastwood)


Maude, Hon Francis
Stewart, Andrew (Sherwood)


Maxwell-Hyslop, Robin
Stewart, Ian (Hertf'dshire N)


Mayhew, Sir Patrick
Sumberg, David


Merchant, Piers
Taylor, John (Solihull)


Meyer, Sir Anthony
Taylor, Teddy (S'end E)


Miller, Hal (B'grove)
Temple-Morris, Peter


Mills, Iain (Meriden)
Terlezki, Stefan


Miscampbell, Norman
Thatcher, Rt Hon Mrs M.


Mitchell, David (Hants NW)
Thomas, Rt Hon Peter


Moate, Roger
Thompson, Donald (Calder V)


Monro, Sir Hector
Thompson, Patrick (N'ich N)


Montgomery, Sir Fergus
Thorne, Neil (Ilford S)


Morris, M. (N'hampton S)
Thurnham, Peter


Morrison, Hon C. (Devizes)
Townend, John (Bridlington)


Morrison, Hon P. (Chester)
Townsend, Cyril D. (B'heath)


Moynihan, Hon C.
Tracey, Richard


Needham, Richard
Trippier, David


Nelson, Anthony
Trotter, Neville


Neubert, Michael
Twinn, Dr Ian


Newton, Tony
van Straubenzee, Sir W.


Nicholls, Patrick
Vaughan, Sir Gerard


Normanton, Tom
Viggers, Peter


Norris, Steven
Waddington, David


Oppenheim, Phillip
Waldegrave, Hon William


Osborn, Sir John
Walden, George


Ottaway, Richard
Wall, Sir Patrick


Page, Sir John (Harrow W)
Waller, Gary


Page, Richard (Herts SW)
Ward, John


Parkinson, Rt Hon Cecil
Wardle, C. (Bexhill)


Patten, Christopher (Bath)
Warren, Kenneth


Patten, J. (Oxf W &amp; Abgdn)
Watson, John


Peacock, Mrs Elizabeth
Watts, John


Percival, Rt Hon Sir Ian
Wells, Bowen (Hertford)


Pollock, Alexander
Wheeler, John


Portillo, Michael
Whitfield, John


Powell, William (Corby)
Whitney, Raymond


Powley, John
Wiggin, Jerry





Wilkinson, John
Younger, Rt Hon George


Wolfson, Mark



Wood, Timothy
Tellers for the Noes:


Woodcock, Michael
Mr. Mark Lennox-Boyd and


Yeo, Tim
Mr. Gerald Malone.

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 268, Noes 204.

Division No. 45]
[10.13 pm


AYES


Aitken, Jonathan
Griffiths, Sir Eldon


Alison, Rt Hon Michael
Griffiths, Peter (Portsm'th N)


Ancram, Michael
Grist, Ian


Arnold, Tom
Ground, Patrick


Aspinwall, Jack
Grylls, Michael


Atkins, Robert (South Ribble)
Hamilton, Hon A. (Epsom)


Baker, Rt Hon K. (Mole Vall'y)
Hamilton, Neil (Tatton)


Baker, Nicholas (Dorset N)
Hampson, Dr Keith


Batiste, Spencer
Hanley, Jeremy


Beaumont-Dark, Anthony
Hannam, John


Bellingham, Henry
Harris, David


Benyon, William
Harvey, Robert


Best, Keith
Havers, Rt Hon Sir Michael


Boscawen, Hon Robert
Hawkins, Sir Paul (N'folk SW)


Bottomley, Mrs Virginia
Hayhoe, Rt Hon Barney


Bowden, A. (Brighton K'to'n)
Hayward, Robert


Brooke, Hon Peter
Heddle, John


Brown, M. (Brigg &amp; Cl'thpes)
Henderson, Barry


Browne, John
Heseltine, Rt Hon Michael


Buchanan-Smith, Rt Hon A.
Hickmet, Richard


Buck, Sir Antony
Hicks, Robert


Budgen, Nick
Higgins, Rt Hon Terence L.


Carlisle, Rt Hon M. (W'ton S)
Hind, Kenneth


Cash, William
Hirst, Michael


Chapman, Sydney
Holt, Richard


Chope, Christopher
Hordern, Sir Peter


Churchill, W. S.
Howard, Michael


Clark, Sir W. (Croydon S)
Howarth, Alan (Stratf'd-on-A)


Cockeram, Eric
Howarth, Gerald (Cannock)


Colvin, Michael
Howell, Ralph (Norfolk, N)


Conway, Derek
Hubbard-Miles, Peter


Coombs, Simon
Hunt, David (Wirral W)


Cope, John
Hunt, John (Ravensbourne)


Cormack, Patrick
Hunter, Andrew


Cranborne, Viscount
Jackson, Robert


Crouch, David
Jenkin, Rt Hon Patrick


Dorrell, Stephen
Jessel, Toby


Douglas-Hamilton, Lord J.
Johnson Smith, Sir Geoffrey


Dunn, Robert
Jones, Gwilym (Cardiff N)


Durant, Tony
Jones, Robert (Herts W)


Dykes, Hugh
Joseph, Rt Hon Sir Keith


Eyre, Sir Reginald
Kellett-Bowman, Mrs Elaine


Fallon, Michael
Key, Robert


Favell, Anthony
King, Rt Hon Tom


Fenner, Dame Peggy
Knight, Greg (Derby N)


Fookes, Miss Janet
Knight, Dame Jill (Edgbaston)


Forman, Nigel
Knowles, Michael


Forsyth, Michael (Stirling)
Knox, David


Forth, Eric
Lamont, Rt Hon Norman


Fox, Sir Marcus
Lang, Ian


Franks, Cecil
Latham, Michael


Fraser, Peter (Angus East)
Lawler, Geoffrey


Freeman, Roger
Lawrence, Ivan


Gale, Roger
Lawson, Rt Hon Nigel


Galley, Roy
Lee, John (Pendle)


Gardiner, George (Reigate)
Leigh, Edward (Gainsbor'gh)


Gardner, Sir Edward (Fylde)
Lennox-Boyd, Hon Mark


Garel-Jones, Tristan
Lester, Jim


Gilmour, Rt Hon Sir Ian
Lewis, Sir Kenneth (Stamf'd)


Glyn, Dr Alan
Lilley, Peter


Goodhart, Sir Philip
Lloyd, Sir Ian (Havant)


Goodlad, Alastair
Lloyd, Peter (Fareham)


Gorst, John
Lord, Michael


Gow, Ian
Lyell, Nicholas


Grant, Sir Anthony
McCrindle, Robert


Greenway, Harry
McCurley, Mrs Anna


Gregory, Conal
MacGregor, Rt Hon John






MacKay, Andrew (Berkshire)
Shaw, Giles (Pudsey)


MacIean, David John
Shaw, Sir Michael (Scarb')


McLoughlin, Patrick
Shelton, William (Streatham)


McNair-Wilson, M. (N'bury)
Shepherd, Colin (Hereford)


McQuarrie, Albert
Shepherd, Richard (Aldridge)


Madel, David
Silvester, Fred


Major, John
Sims, Roger


Malins, Humfrey
Skeet, Sir Trevor


Marlow, Antony
Smith, Sir Dudley (Warwick)


Marshall, Michael (Arundel)
Soames, Hon Nicholas


Mates, Michael
Speed, Keith


Mather, Carol
Speller, Tony


Maxwell-Hyslop, Robin
Spicer, Jim (Dorset W)


Mayhew, Sir Patrick
Spicer, Michael (S Worcs)


Merchant, Piers
Squire, Robin


Meyer, Sir Anthony
Stanbrook, Ivor


Miller, Hal (B'grove)
Stanley, Rt Hon John


Mills, Iain (Meriden)
Steen, Anthony


Miscampbell, Norman
Stern, Michael


Mitchell, David (Hants NW)
Stevens, Lewis (Nuneaton)


Moate, Roger
Stewart, Allan (Eastwood)


Monro, Sir Hector
Stewart, Andrew (Sherwood)


Montgomery, Sir Fergus
Stewart, Ian (Hertf'dshire N)


Morris, M. (N'hampton S)
Sumberg, David


Morrison, Hon C. (Devizes)
Taylor, John (Solihull)


Morrison, Hon P. (Chester)
Taylor, Teddy (S'end E)


Moynihan, Hon C.
Temple-Morris, Peter


Needham, Richard
Terlezki, Stefan


Nelson, Anthony
Thatcher, Rt Hon Mrs M.


Neubert, Michael
Thomas, Rt Hon Peter


Newton, Tony
Thompson, Donald (Calder V)


Nicholls, Patrick
Thompson, Patrick (N'ich N)


Normanton, Tom
Thorne, Neil (Ilford S)


Norris, Steven
Thurnham, Peter


Oppenheim, Phillip
Townend, John (Bridlington)


Osborn, Sir John
Townsend, Cyril D. (B'heath)


Ottaway, Richard
Tracey, Richard


Page, Sir John (Harrow W)
Trippier, David


Page, Richard (Herts SW)
Trotter, Neville


Parkinson, Rt Hon Cecil
Twinn, Dr Ian


Patten, Christopher (Bath)
van Straubenzee, Sir W.


Patten, J. (Oxf W &amp; Abgdn)
Vaughan, Sir Gerard


Peacock, Mrs Elizabeth
Viggers, Peter


Percival, Rt Hon Sir Ian
Waddington, David


Pollock, Alexander
Wakeham, Rt Hon John


Portillo, Michael
Waldegrave, Hon William


Powell, William (Corby)
Walden, George


Powley, John
Wall, Sir Patrick


Price, Sir David
Waller, Gary


Proctor, K. Harvey
Ward, John


Raffan, Keith
Wardle, C. (Bexhill)


Raison, Rt Hon Timothy
Warren, Kenneth


Rathbone, Tim
Watson, John


Rees, Rt Hon Peter (Dover)
Watts, John


Rhodes James, Robert
Wells, Bowen (Hertford)


Ridsdale, Sir Julian
Wheeler, John


Rifkind, Rt Hon Malcolm
Whitfield, John


Rippon, Rt Hon Geoffrey
Whitney, Raymond


Roberts, Wyn (Conwy)
Wiggin, Jerry


Robinson, Mark (N'port W)
Wilkinson, John


Roe, Mrs Marion
Wolfson, Mark


Rossi, Sir Hugh
Wood, Timothy


Rost, Peter
Woodcock, Michael


Rowe, Andrew
Yeo, Tim


Rumbold, Mrs Angela
Younger, Rt Hon George


Sackville, Hon Thomas



Sainsbury, Hon Timothy
Tellers for the Ayes:


Sayeed, Jonathan
Mr. Francis Maude and


Scott, Nicholas
Mr. Gerald Malone.




NOES


Abse, Leo
Barron, Kevin


Adams, Allen (Paisley N)
Beckett, Mrs Margaret


Alton, David
Beith, A. J.


Archer, Rt Hon Peter
Bell, Stuart


Ashdown, Paddy
Benn, Rt Hon Tony


Ashley, Rt Hon Jack
Bennett, A. (Dent'n &amp; Red'sh)


Ashton, Joe
Bermingham, Gerald


Atkinson, N. (Tottenham)
Bidwell, Sydney


Banks, Tony (Newham NW)
Blair, Anthony





Boothroyd, Miss Betty
Hughes, Dr Mark (Durham)


Boyes, Roland
Hughes, Robert (Aberdeen N)


Brown, Gordon (D'f'mline E)
Hughes, Roy (Newport East)


Brown, N. (N'c'tle-u-Tyne E)
Hughes, Simon (Southwark)


Brown, R. (N'c'tle-u-Tyne N)
Janner, Hon Greville


Brown, Ron (E'burgh, Leith)
John, Brynmor


Bruce, Malcolm
Johnston, Sir Russell


Buchan, Norman
Jones, Barry (Alyn &amp; Deeside)


Caborn, Richard
Kaufman, Rt Hon Gerald


Callaghan, Jim (Heyw'd &amp; M)
Kennedy, Charles


Campbell, Ian
Kinnock, Rt Hon Neil


Campbell-Savours, Dale
Kirkwood, Archy


Canavan, Dennis
Lamond, James


Carter-Jones, Lewis
Leadbitter, Ted


Cartwright, John
Leighton, Ronald


Clark, Dr David (S Shields)
Lewis, Ron (Carlisle)


Clarke, Thomas
Lewis, Terence (Worsley)


Clay, Robert
Litherland, Robert


Clelland, David Gordon
Livsey, Richard


Clwyd, Mrs Ann
Lloyd, Tony (Stretford)


Cocks, Rt Hon M. (Bristol S)
Lofthouse, Geoffrey


Cohen, Harry
Loyden, Edward


Coleman, Donald
McCartney, Hugh


Cook, Frank (Stockton North)
McDonald, Dr Oonagh


Cook, Robin F. (Livingston)
McGuire, Michael


Corbett, Robin
McKay, Allen (Penistone)


Corbyn, Jeremy
McKelvey, William


Cox, Thomas (Tooting)
MacKenzie, Rt Hon Gregor


Craigen, J. M.
MacIennan, Robert


Crowther, Stan
McNamara, Kevin


Cunliffe, Lawrence
McTaggart, Robert


Cunningham, Dr John
McWilliam, John


Dalyell, Tam
Madden, Max


Davies, Rt Hon Denzil (L'lli)
Marek, Dr John


Davis, Terry (B'ham, H'ge H'l)
Martin, Michael


Deakins, Eric
Mason, Rt Hon Roy


Dewar, Donald
Maxton, John


Dixon, Donald
Maynard, Miss Joan


Dobson, Frank
Meacher, Michael


Dormand, Jack
Meadowcroft, Michael


Douglas, Dick
Michie, William


Dubs, Alfred
Millan, Rt Hon Bruce


Duffy, A. E. P.
Mitchell, Austin (G't Grimsby)


Dunwoody, Hon Mrs G.
Morris, Rt Hon A. (W'shawe)


Eadie, Alex
Morris, Rt Hon J. (Aberavon)


Eastham, Ken
Nellist, David


Edwards, Bob (W'h'mpt'n SE)
O'Brien, William


Evans, John (St. Helens N)
O'Neill, Martin


Fatchett, Derek
Owen, Rt Hon Dr David


Faulds, Andrew
Park, George


Field, Frank (Birkenhead)
Parry, Robert


Fields, T. (L'pool Broad Gn)
Patchett, Terry


Fisher, Mark
Pavitt, Laurie


Flannery, Martin
Pendry, Tom


Foot, Rt Hon Michael
Penhaligon, David


Forrester, John
Pike, Peter


Foster, Derek
Powell, Raymond (Ogmore)


Foulkes, George
Prescott, John


Fraser, J. (Norwood)
Radice, Giles


Freeson, Rt Hon Reginald
Randall, Stuart


Garrett, W. E.
Raynsford, Nick


George, Bruce
Redmond, Martin


Godman, Dr Norman
Rees, Rt Hon M. (Leeds S)


Golding, Mrs Llin
Richardson, Ms Jo


Gould, Bryan
Roberts, Ernest (Hackney N)


Gourlay, Harry
Robertson, George


Hamilton, James (M'well N)
Rogers, Allan


Hamilton, W. W. (Fife Central)
Rooker, J. W.


Hancock, Michael
Ross, Ernest (Dundee W)


Harrison, Rt Hon Walter
Ross, Stephen (Isle of Wight)


Hart, Rt Hon Dame Judith
Rowlands, Ted


Hattersley, Rt Hon Roy
Sedgemore, Brian


Heffer, Eric S.
Sheerman, Barry


Hogg, N. (C'nauld &amp; Kilsyth)
Sheldon, Rt Hon R.


Holland, Stuart (Vauxhall)
Shields, Mrs Elizabeth


Home Robertson, John
Shore, Rt Hon Peter


Howarth, George (Knowsley, N)
Short, Ms Clare (Ladywood)


Howell, Rt Hon D. (S'heath)
Short, Mrs R.(W'hampt'n NE)


Howells, Geraint
Silkin, Rt Hon J.


Hoyle, Douglas
Skinner, Dennis






Smith, C.(Isl'ton S &amp; F'bury)
Thorne, Stan (Preston)


Smith, Rt Hon J. (M'ds E)
Wallace, James


Snape, Peter
Wardell, Gareth (Gower)


Soley, Clive
Wareing, Robert


Spearing, Nigel
Weetch, Ken


Steel, Rt Hon David
Welsh, Michael


Stott, Roger
White, James


Straw, Jack
Wigley, Dafydd


Taylor, Rt Hon John David
Williams, Rt Hon A.


Thomas, Dafydd (Merioneth)
Wilson, Gordon


Thomas, Dr R. (Carmarthen)
Winnick, David


Thompson, J. (Wansbeck)
Woodall, Alec





Wrigglesworth, Ian
Tellers for the Noes:


Young, David (Bolton SE)
Mr. Ron Davies and



Mr. Sean Hughes.

Question accordingly agreed to.

Resolved,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.

Orders of the Day — Water Authorities (Return on Assets)

Mr. Roland Boyes: I beg to move,
That an humble Address be presented to Her Majesty, praying that the Water Authorities (Return on Assets) Order 1986 (S.I., 1986, No. 1952), dated 18th November 1986, a copy of which was laid before this House on 24th November, be annulled.
The purpose of the order is to increase the price of water to its users. We in the Labour party do not accept that it is appropriate to calculate the rate of return on a false valuation of the industry's assets.
My hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker) on 2 February 1985 and for South Shields (Dr. Clark) on 17 December 1985 discussed the technicality of using the current cost accounting procedure in their speeches on the orders S.I., 1984, No. 1995 and S.I., 1985, No. 1805. My hon. Friend the Member for South Shields said:
To adopt the current cost accounting procedure as the valuation is a false and incorrect way to handle the issue." —[Official Report,17 December 1985; Vol. 89, c. 257.]
My hon. Friend the Member for Perry Barr discussed the issued at some length and I do not wish to take time rehearsing the arguments again. However, I wish to consider the implications of the order, which are serious for the people whom my hon. Friends and I represent. There is a clear connection between the return on assets and the level of charges to customers.
An analysis of the figures reveals a number of facts, two of which I wish to highlight. First, since 1984–85 the target rate of return has increased for all water authorities and, secondly, a comparison of the range of rates of return with the previous two years reveals a widening gap. Last year, for example, the range was 1·5 per cent to 1·73 per cent., whereas this year it is 1·7 per cent to 2·1 per cent. Why is that happening, when the Government's initial intention was to move to a common rate of return for all authorities?
I am sure that the Minister will have had sight of a document from the Confederation of British Industry about the order, entitled "CBI: the Industrial View", which states:
it is reasonable to assume that next year's targets are being set to even out price increases rather than encourage effective management with the authorities.
The price to the average householder is increasing dramatically, as a few figures will illustrate. Between 1978–79 and 1986–87, the increase in prices to all water authorities averaged a staggering 143 per cent., ranging from 123 per cent for South-West Water to 163 per cent for Northumbrian Water. The average price increase for the past two years was 11·7 per cent in 1985–86, when all water authorities except one increased prices by double figures. For 1986–87, the average is 8 per cent—still more than double the inflation rate.
Those increases resulted in extraordinary profits. Northumbrian Water increased its profits seven times and Thames by £45 million from £105 million to £150 million. Clearly, this is completely unacceptable. However, the same customers must accept further increases in 1987–88, which could be as high as 10 per cent. It is certain that they will be well above inflation, which suggests another question to the Minister. In the White Paper on

privatisation, price controls of retail price index minus X were proposed. Why are today's customers facing an increase of RPI times X? Not only householders are affected by price increases. Business customers are, too, and the CBI is rightly worried that, after a series of increases exceeding inflation, businesses will have difficulty in keeping down operational costs and remaining competitive. That will have serious implications for jobs, which concerns my hon. Friends.
The water authorities have no option but to increase prices. The Government are slashing their borrowing powers by £100 million; that means that the only alternative is to cut capital spending which, with the current state of the industry, is not a serious option. Mr. Roy Watts, chairman of the Thames water authority, is so worried that he has written to all London Members. In his letter, he says:
It seems as if we shall once again be asked to substantially increase our repayment of long term debt in the coming year … We shall be entirely debt-free within three years, which amounts to a very poor deal for today's customers.
Mr. Malcolm Anson, chairman of Wessex water authority, wrote in a letter to my right hon. Friend the Member for Bristol, South (Mr. Cocks) on 10 December that the effect of the Government's policies could only be to the
detriment of our present standards of service.
As a result of price increases and of reductions in the external financing limit—the borrowing powers of the water authorities—Richard Evans wrote in an article in the Financial Times on 17 July 1986:
The authorities have become much more financially attractive since the prospect of privatisation was first raised 18 months ago.
It appears that the Government are still committed to privatising the water authorities. Or are they? From previous announcements, one cannot be sure of the Government's thinking on the industry. On 19 December 1984, the former Under-Secretary of State for the Environment, the hon. Member for Sutton and Cheam (Mr. Macfarlane), said:
We have absolutely no intention of privatising the water industry. The Government have no plans to urge that upon the water authorities. There has been some press speculation about it in the past, but there is no intention to do so." —[Official Report, 19 December 1984; Vol. 70, c. 457.]
Just over a month later, on 31 January 1985, in a written answer, the Prime Minister said:
The Government would welcome new ideas on privatisation. However, the water authorities are natural monopolies for many of their functions and we need to be particularly careful when considering replacing a public monopoly by a private one."—[Official Report, 31 January 1985; Vol. 72, c. 292.]
On 5 February 1986, all had become clear. The Secretary of State for the Environment, now the Secretary of State for Education and Science, said:
The Government have now decided to transfer the 10 water authorities in England and Wales to private ownership." —[Official Report, 5 February 1986; Vol. 91, c. 287.]
The position was confirmed by the Minister for Housing, Urban Affairs and Construction when he moved an amendment to a motion of the hon. Member for Southwark and Bermondsey (Mr. Hughes) on 23 June 1986 which
welcomes the Government's proposals for the privatisation of the water authorities."—[Official Report, 23 June 1986; Vol. 100, c. 36.]
But that is not the end of the story. On 3 July—just over a week after the Minister had spoken—the


Secretary of State for the Environment was forced by my hon. Friend the Member for Copeland (Dr. Cunningham) to come before the House at 10 pm to make what my hon. Friend described as
a pathetic and inadequate statement.
In that statement, the Secretary of State withdrew the Government's privatisation proposals. However, he said:
I reaffirm the Government's intention to proceed with water privatisation as soon as practicable."—[Official Report, 3 July 1986: Vol. 100, c. 1261.]
I will not ask the Minister to make a statement today. He must realise that this is a bit of a minefield. However, I have a serious comment to make about his Department's water legislation division. In 1985–86, costs other than staff were £103,000. In the first half of 1986–87, the costs had reached a colossal £1·3 million. On what is that money being spent? Should the Government bring back their proposals to privatise the water authorities, I assure the House that they will be opposed as vigorously as they were before.
My hon. Friends and I condemn any proposal to privatise a basic necessity of life. We believe that the water industry should be kept in the public sector, the integrated river basin management retained, and until a regional tier of government is introduced, regional water authorities should continue. However, there will be changes to democratise the boards, as we cannot allow a small group of people meeting in secret to determine policy. We shall invest in the industry to clean up beaches and improve the quality of drinking water. We shall not ask water authorities to become what Roy Watts described as "covert tax collectors" for the Government. Under a Labour Government, water authorities will be able to use profit to improve both quality of service and water to the consumer.
This week, a report by the Nitrate Co-ordination Group, "Nitrates in Water", describes how nitrate levels in some areas are above EEC limits and there is a danger that heavy nitrate concentrations could cause serious health hazards. The Government are also concerned about the state of beaches in the United Kingdom. It is incredible that only 27 beaches in the United Kingdom are designated as possessing bathing water meeting EEC quality standards.
To satisfy the requirements of both the nitrate and bathing beach problems would cost about £600 million. Some £200 million is estimated as being needed to solve the nitrate problem, and £400 million for the bathing beach problem. Ian Hill, the chairman of South-West Water, in The Independent on 13 December is reported as saying that the Minister's announcement on bathing beaches is
incompatible with financial restrictions currently being imposed by the DOE … It is just not good enough to order these costly monitoring and improvement works while ignoring the financial implications.
Will the Minister be producing hard cash for the water authorities to carry out these tasks, particularly the £400 million for the short term and urgent need to clean up the beaches?
The CBI, in the note already cited, states:
The increases in charges expected next year will add between £80 million to £100 million to business and industry's costs … The signs are that where large water users discharge effluent to public sewage works it is becoming increasingly attractive for them to instal their own treatment plants.
The writer of the note correctly points out that this will lead to unused and unusable plant in the hands of the

water authorities, and consequently, the opportunity for investment in the productive areas that could create employment.
I should be glad to have the Minister's comments on this matter, along with answers to the other questions that I have raised. This is a shabby, unacceptable order. I urge the Minister not to press ahead with it but to take it away and come back with a more acceptable proposal. Unlike Conservative Members, my hon. Friends and I care about the water industry.

The Minister for Housing, Urban Affairs and Construction (Mr. John Patten): I am afraid that I must disappoint the hon. Member for Houghton and Washington (Mr. Boyes) after his excellent speech, which contained some penetrating questions. We shall be pressing ahead with the order, and we have every reason to be proud of our record of investment in the water industry since 1979, as I shall be able to demonstrate.
I remind the House of our policy, which I outlined a year ago when the previous order was debated. This is exactly the same policy as that announced in 1984 by my distinguished predecessor, my hon. Friend the Member for Eastbourne (Mr. Gow), who I see here tonight. Two years ago we were seeking convergence as much as possible, in answer to the hon. Gentleman's first question. [Interruption.] I do not know what the hon. Member for Copeland (Dr. Cunningham) finds so funny about this. I am trying to answer the questions put to me by the hon. Member for Houghton and Washington.

Dr. John Cunningham: It was a compliment.

Mr. Patten: If that is a compliment, I shall give way gladly.

Dr. Cunningham: Not to the hon. Gentleman.

Mr. Patten: In that case, I shall not. I thought that, as it is Christmas time, I might get a compliment from the hon. Gentleman, but, alas, I shall not.
I agree with the hon. Member for Houghton and Washington that there has been some divergence, but this divergence reflects the financing needs of the authorities. Anglian has the highest target, reflecting its heavy investment requirements and its need to reduce the heavy burden of interest.
We have asked water authorities steadily to improve the rate of return that they earn on their capital assets. The previous figure of approximately 1 per cent was an inadequate return on the considerable investment in the water industry. In 1984 the target announced for 1987–88 by my hon. Friend the Member for Eastbourne was an average of 1·9 per cent. The average figure in the order that was laid on 24 November is close to that figure, but at 1·875 per cent it is not quite so tough.
The hon. Member for Houghton and Washington was a little unfair about the Government's record since 1979. In 1986–87, water authorities' capital expenditure, excluding expenditure on the tricky subject of land drainage, is £925 million, about 40 per cent of revenue. That is not bad. It represents an increase of 35 per cent., in volume terms, since 1980–81. In some areas the increases, in volume terms, are even higher—70 per cent in the South-West, 74 per cent in the North-West and 110 per cent in Wessex. I do not see any Members


from Wessex constituencies here; clearly they are very satisfied with the volume of investment in their area. It is more than the 70 per cent increase in the South-West, where the volume of investment is considerably above the national average.

Mr. Robin Maxwell-Hyslop: Of course the Wessex Members of Parliament are satisfied. They obtain a great deal of their water from a new reservoir, paid for out of capital, in the South-West water authority's area.

Mr. Patten: The South-West will have its own splendid reservoir when Roadford reservoir is constructed.
In 1974, virtually all the investment by the water authorities was funded by borrowing. Inevitably, that placed a burden on public expenditure. By 1980–81, 40 per cent of the investment was funded by borrowing. In 1987–88 the industry will pay for virtually all its investment. That has been achieved while the burden on public expenditure has been reduced.
The water authorities deserve praise for their efficiency. They have reduced their total operating costs by 6 per cent., in real terms, since 1980. Efficiency in most water authorities has improved year by year. Unfortunately, it has slipped back in recent years in a few authorities. Operating and management expenditure per head has been reduced for all major services. Standards of service have been maintained or improved, although a few water authorities could do better. On the whole, though water authorities are doing more work for less expenditure. That is an impressive record.

Mr. Simon Hughes: Does the Minister know of any public sector body from which the Government have required such a large pay back of borrowed money in the last three years?

Mr. Patten: There is nothing wrong with a businesslike rate of return of 1 to 2 per cent on water industry assets. Any business would expect to earn considerably more. I can tell the official spokesman for the alliance, its representative here today, that water authority debt stands at about £5 billion and interest charges take no less than one quarter of the whole of the revenue from water authority customers. That is too much, hence the policy laid down by my predecessor, my hon. Friend the Member for Eastbourne.
Amidst all the understandable concern about bathing beaches and the quality of river water, which the hon. Member for Houghton and Washington did not mention, let us remember that 99 per cent of Britain's households are connected to mains water and 95 per cent are connected to sewerage. Those are the highest percentages in Europe.

Mr. Nigel Spearing: Thanks to public enterprise.

Mr. Patten: Thanks to public and private enterprise over the best part of 200 years. Every year, service standards to maintain these improvements are monitored through the process of the corporate plans produced by water authorities.

Mr. Spearing: Will the hon. Gentleman give way?

Mr. Patten: Perhaps the hon. Gentleman will forgive me if I do not. This is a short debate and I must make

progress. The number of customers experiencing inadequate water pressure has fallen considerably. In every area the quality of drinking water has improved, and I am happy to report to the House that the number of properties affected by sewage flooding is low and has fallen in most authority areas. The reductions in operating costs achieved by most authorities have not been at the cost of a reduction in service standards. That is a tribute to the publicly owned water authorities and, where appropriate, to the excellent record of the privately owned water companies. I am pleased to see my hon. Friend the Member for Harrow, West (Sir J. Page) in his place.

Mr. Maxwell-Hyslop: They do not dispose of sewage.

Mr. Patten: They do not; I am well aware of that. However, they supply water and have a good record for supplying potable water at a good cost. The underlying gains in efficiency are better than steady and, even after all these service improvements, there has been a 6 per cent reduction in operating costs.
Despite the evidence of improving levels of service, we still hear frequent complaints about the state of the water industry's assets. That is a bit of a myth, because asset condition is now reported annually in the corporate plans of water authorities, and we discuss those with the authorities, as I have done this year with every water authority in England and as my hon. Friend the Member for Newport, West (Mr. Robinson) the Parliamentary Under-Secretary of State for Wales, has done with the chairman of the Welsh water authority.
Thanks to the independent-minded work of the Water Research Centre, the water industry now has manuals describing the best way of conducting and interpreting surveys on the condition of assets. All authorities are making considerable progress with these surveys.
The record shows increased investment and lower operating costs. There have been improvements in service standards, certainly an improved knowledge of asset condition, and a reduction in the burden of public expenditure, which I applaud. The present order continues that policy. It is a great contrast to the policy which led to declining investment for which some right hon. Gentlemen on the Opposition Front Bench were responsible in the Labour Government before 1979.
In 1979 we saw declining investment and seemingly bottomless deficit financing of the water industry. That was the picture that faced the Government when we took power in 1979. It was not a happy picture, and the progress that has been made since 1979 is a remarkable tribute to the efficiency of the water authorities and to the Government for the substantial sums of money invested in the industry.

Mr. Jeremy Corbyn: How many jobs have been lost?

Mr. Patten: About 20 per cent. Of course, aspirations must go on rising and I share those aspirations, as does my right hon. Friend the Secretary of State for the Environment. As scientific understanding and environmental awareness develop, and as general living standards continue to rise for most of—though not all—our citizens we will have to apply ever-higher standards. We are not trying to measure our achievements in the water industry against one benchmark. The water authorities have been brought to a much stronger financial position


from which they can face the problems. Their corporate plans show that they recognise the problems and have the will to tackle them.
The order continues the Government's progress before privatisation, to which the Government remain committed, in discharging their responsibility to ensure that the water authorities operate in an effective and businesslike way.
It is a long time now since the water industry was the poor relation of local government, which it was for too long. The Government can rightly claim that we have created the conditions of sound finance and commercial flair which now, more than ever before, permeate most water authorities and reflect what their customers expect. That is why we intend to press the order home tonight.

Several Hon. Members: rose—

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. I remind the House that the debate must finish at 11.30 pm and the Front bench spokesmen are hoping to catch my eye at 11.20 pm.

Mr. William O'Brien: The debate has been initiated because of the impact of the Government's financial policy on water authorities' charges next year. Current signs are that the charges for most water authorities will increase by between 8 and 10 per cent., with the majority being at the 10 per cent mark. That follows an increase in excess of 10 per cent for the current year. Therefore, there is little comfort in what the Minister has offered tonight to water consumers throughout the length and breadth of Britain.
If there is one Minister in the Government who has his head in the sand, it is the Minister who is responsible for water charges. The Government's policies have meant high prices, well above the rate of inflation, and, in most cases, a reduction in services. If consumers had the choice, would they go for a rise in water charges in order to receive a higher level of services? We often hear that question posed in the water industry.

Mr. John Patten: Will the hon. Gentleman give way?

Mr. O'Brien: The Minister was the first to say that this was a short debate, yet after two minutes he asks me to give way. I am afraid that I must refuse the Minister on this occasion. The Minister refused to give way to me once in Committee because he wanted an apology. I shall not give way to the Minister.
In Yorkshire, charges have been increased, yet we are still suffering from discoloured water, soil collapse and flooding. If the Minister comes to Yorkshire he will see how higher charges are reflected in the services provided for the people there. He did not mention Yorkshire.
It is politically impossible for the Government to rate-cap local authorities to fight inflation and then to increase charges to water consumers by an average of 10 per cent. It is also an unnecessary burden to increase charges for industry, particularly the big water users, such as the food processing, chemical, pharmaceuticals, textiles, brewing and paper industries. I believe it is an attack on job opportunities in the large water-consuming industries. The object of the 1983 reorganisation was to ensure that the water authorities were run as highly efficient businesses. The way in which the Minister has described the order

tonight suggests that they are just turning water authorities into tax collectors because the order is nothing more than a tax increase on water charges.
I should like to raise the question of the water authorities opening their meetings to the public and the press. We are talking about water charge increases which will affect all water consumers, especially in Yorkshire, yet there is no opportunity for members of the public or consumers to try to find out how decisions are reached.
Earlier this month the Yorkshire water authority at a board meeting, revealed:
the increase would have been nearly 2 per cent higher if it had not been for two factors: the welcome relaxation by the Government of financial controls which permit more borrowing".
If to "permit more borrowing" is the criterion for reducing charges, why do the Government not allow that to continue? That is the Yorkshire water authority's suggestion to keep charges down.
On behalf of the Yorkshire water authority, I must say that if we are to be reasonable to consumers we should allow more borrowing to take place, as has been described by that authority, in order to keep prices down. I hope that we will reject the order.

Mr. Robin Maxwell-Hyslop: There are many defects in the argument that my hon. Friend the Minister put forward. If he had been listening at Question Time, he would have heard his right hon. Friend the Secretary of State say that he regarded borrowings not as debt but in the nature of an overhead. If that is the case, it is nonsense to talk about return on capital. The Minister cannot call it capital for one argument and for another call it overhead. He should make his mind up which it is, instead of trying to ride both horses or they will split him down the middle because they are going in different directions.
The Government are trying, we understand, to control inflation. Therefore, what possible reason can there be to bring in orders the effect of which is to increase the water rates by more than the rate of inflation? Water is the tool of the trade of many industries—for example, the paper industry. It must be remembered that retirement pensions increase only as function of the retail price index and, moreover, they are not subject to abatement, unlike rates. Those are two good reasons for keeping water charges below the rate of inflation and not allowing them to go above it.
The other major point I want to make is that the Department of the Environement is supposed to be a coherent Department of State. There are many reasons for believing that that is a false assumption. It is simply not coherent to have one Minister exhorting water authorities to spend immense sums of money on new sewerage works to process sewage, instead of what is politely known as macerating it and then releasing it into the sea—that may be commendable—and then to have a zero external financing limit imposed on the water authority that has the longest coastline of any per head of population and whose population increased by a tremendous factor in the summer—it has approximately on quarter of the tourist activity in Britain—when water flows are at a minimum.
The use of capital expenditure for the purpose of cleaning up the beaches is not compatible with the order against which the prayer has been laid. I shall be voting for the prayer because the order does not contain a


coherent and sensible policy and because it is not compatible with what the autumn statement has to say about inflation.

11 pm

Mr. Dafydd Wigley: This issue of water charges in Wales has been a contentious one for a long time and it has become more contentious in recent years because of the substantial increase in the cost of water under the Government's policies. Welsh water rate payers have to pay £4 million more a year in water rates as a result of a deliberate act of policy by the Government when they did away with the Water Equalisation Act 1977. There has been a historic high level of water charges in Wales, which for the most of the time have been at the top of the league table of charges in England and Wales, and in the past couple of years there have been forced increases in water charges arising from the requirement to have a set return on the capital base.
Water rates in Wales will increase next year between twice and three times the rate of inflation as a result of the order against which we are praying. The charge for water will increase by 6 per cent., 7 per cent or 8 per cent compared with the going rate of inflation, which is 3 per cent. That will hit those who can ill afford to pay such charges.
Why are we being forced to increase water charges in Wales in this way? Increased charges are being imposed to finance the capital expenditure programme, which I agree is necessary in Wales. I understand that the capital expenditure programme next year will include about £68 million for the Welsh water authority. A substantial part of the programme will be directed to improving beaches in Wales, and no one would dispute the need to improve their standard. We contend, however, that the cost of undertaking the necessary work should be borne by the taxpayer in general and not only by the ratepayer in Wales. The beaches of Wales are for the benefit of people from all parts of these islands and the cost of improving them should not be incurred only by water rate payers in Wales. The cost of cleaning the beaches of Wales should be met by Treasury grant instead of increasing the return on capital. The order will require a 1·95 per cent. return on capital base, which is higher than the average. I believe that the Minister said that the average is 1·875 per cent. As I have said, charges in Wales are already high.
The proposed increase will realise an additional £7·5 million a year. That is the increased profit that is required to be funded by Welsh water rate payers to finance the Government's back-door taxation. The logic of the Government's position suggests that there is a move towards privatisation. The Welsh water authority has a capital base of £1,600 million and if there were to be a reasonable return in financial terms on that base we would be looking for 10 per cent., which would be £160 million a year. The profit of the authority has been about £24 million a year, and that will increase to about £30 million as a result of the change that the Government propose. That is nothing like the return that will be required if the authority is to be privatised.
If there is to be privatisation, there will have to be a massive increase in the cost of water or the assets of the authority will have to be given away at about a fifth or a quarter of the cost of their construction. That would be a

nonsensical public policy. The dogmatic privatisation which the Government insist on pursuing is the reason why Welsh water rate payers are being required to pay 6 per cent., 7 per cent or 8 per cent more for their water next year.
As I have said, the extra charge will hit home extremely hard. If the authority is privatised, the increased capital expenditure which is being justified by the Government will not be directed to capital expenditure. It will be given in the form of a dividend to those who have put money in. In other words, it is an excuse to say that we need to fund capital expenditure by increasing the return. The Government want the return to be high enough to be attractive to those who may put money in. There is no way in which privatisation of this basic public service can be justified, as the Government insist, and the poor water rate payer will have to bear the cost.

Mr. Ian Gow: I rise to congratulate my hon. Friend the Minister on the way in which he has presented the Government's case, and to say that I hope that my hon. Friends will vote against the Opposition's prayer.
I very much welcome my hon. Friend's reaffirmation of the Government's commitment to the privatisation of the water industry. That privatisation is long overdue, and I hope that it will be included in one of the first Bills in the next Parliament. When that privatisation has been accomplished, it will no longer be necessary for us to debate such orders late at night although reference has been made to the remarks of my right hon. Friend the Prime Minister, it is emphatically the case that the water industry is capable of responding to a new impetus and to the fresh ideas which will come from private ownership.
My hon. Friend the Minister is continuing with the Government's sensible economic policy in seeking a proper return on the water authorities' assets. There has been a slight modification of the policy. The return on assets sought in the order is slightly less than was envisaged two years ago. Nevertheless, requiring a higher and more appropriate return on assets moves the water authorities in the right direction.
There is one specific point that I wish to put to my hon. Friend the Minister, and I hope that he has had more success than I had when I held his responsibilities. It was my experience that the nine water authorities in England were extremely reluctant to dispose of land that was not required for operational purposes. There was a misunderstanding, or myth, that it was necessary for the water authority requiring a catchment area to own the freehold.
I hope that my hon. Friend will persevere strenuously and urgently with the policy of requiring the water authorities to dispose of land that is not required for operational purposes. Such a disposal of assets would diminish the cost to the customer and would affect the way in which my hon. Friend presents any further orders, if there are any. I urge on my hon. friend the truth of the proposition that it is possible to safeguard the purity of supply from a catchment area without the water authority owning the land involved.
I congratulate my hon. Friend, and I hope that the Opposition's prayer will be soundly defeated.

Mr. Simon Hughes: We will wholeheartedly support the prayer, because the Government have persisted in the same illogical economic policy and ignored the consumer.
It is illogical to say that over a very short period of time the borrowing necessary for the water industry must be paid off by the consumers of last year, this year and next year. That is not the way that public finance should work, and it is not the way that it wórks anywhere else. One should add to that, as the hon. Member for Tiverton (Mr. Maxwell-Hyslop) said, the completely contradictory statement of Government policy that was adumbrated only hours ago by the Chancellor of the Exchequer when asking the House to approve his autumn statement. In chapter I, "Economic prospects for 1987", the Chancellor makes it clear that the Government still regard the containment of inflation to about 3 per cent as one of the cornerstones of their economic policy. Yet the Government persist—the hon. Member for Eastbourne (Mr. Gow) started the policy when he was Minister with responsibility for the water industry—in telling the industry that it must repay money and make such charges as will inevitably cause the consumers to pay substantially more than the rate of inflation, which they regard as unacceptable. It is not acceptable in terms of economic logic or in terms of who should bear the cost burden of the water industry. Above all, it is not acceptable to the consumer.
The Minister referred to many points, some of which we do not disagree with—for example, the need for investment. There is clearly a substantial need for investment and greater efficiency. However, he did not-explain that the policy will substantially increase the price of water for people in Tory-held constituencies in the Thames region and elsewhere. The Government must accept the responsibility for that.
The Minister knows that in October the chairman of the Thames water authority wrote to all hon. Members representing constituencies in the Thames water authority region—all 148 Members, the majority of whom are Conservatives, including the Prime Minister and the Minister responsible for the water industry—stating that if the policy were pursued there would be an increase of about 10 per cent in the forthcoming year. One high-ranking Government source—who appears unnamed at the relevant time—made it clear that that was an entirely unacceptable way for the chairman of the Thames water authority to behave and that he would not be reappointed.
It is unacceptable for someone who is appointed by the Government to run a quango to be criticised when he tries this year, for the third year running, to say that the authority does not want or need the increase. The authority does not regard the increase as reasonable or appropriate because it is doing perfectly well and should be left to its own devices.
It is unacceptable that, for the third year in a row, we have an order before us requiring a return on assets that has not been asked for by the authorities. The rate of return is higher than ever before. It increased from 1·4 per cent three years ago to an average of 1·62 per cent last year, and the average is 1·88 per cent this year.
The debate will again reflect anger at the Government's failure to comprehend. They have chosen the wrong

criteria for calculating the way in which historical and actual costs should be financed. They have neglected the fact that if they did not require the money to be paid back to the Treasury, it could be invested in infrastructure. They have also neglected the enormous environmental demands and requirements that proper investment could allow to proceed.
The Government have become hooked on an economic policy that is nonsense. They want to make the fatted calf ripe for slaughter when they privatise the industry. I do not believe that they will privatise it. If they put privatisation up front in their election shop window, their natural supporters will claim that privatising the water industry and the environment is unacceptable. In the same way this increase in water charges is unacceptable. It will remain unacceptable every time the Government try this con on the country. They could avoid it if they only had the guts to do so.

Mr. Tony Speller: The hon. Member for Southwark and Bermondsey (Mr. Hughes) made an interesting speech. It appears that the Liberal party has made a good economic case for privatisation. That is not the point that I seek to make. The test must be whether the order fulfils the wishes of the consumers—the users of water, the residents of the area. I must say to the Minister that, frankly, the order does not meet their wishes.
The water authorities are inevitably the least popular authorities of all unpopular bodies. That will always be the case as their responsibilities are so vast and their areas so huge. It is no accident that there is a triangle of colleagues in the Chamber representing constituencies in the South-West water authority region. We all suffer from old mains, over-developed rural areas, low pressure and everything that is costly and where improvement is inevitable. Therefore, anything that we allow our authorities to invest in the mains and the infrastructure must be welcome. I do not go as far as the hon. Member for Southwark and Bermondsey because it is also inevitable that we must turn to the idea of privatisation to give the consumer that which he wishes to have.
I do not put that forward as an argument for voting against the order. My fear is, quite simply, that someone in the Department thought of an acceptable figure—5 per cent or 7 per cent—about which people would not complain. I find that an unacceptable and unreasonable way of conducting matters.
My hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) spoke about one area where the sewage is macerated before being put into the estuary of two most beautiful rivers, the Taw and the Torridge. Someone somewhere has to permit water authorities to spend their money on things that we must have, such as clean, pollution-free water.
I am entirely in favour of privatising what might be called a water company, but there is no way in which we can privatise and put on the meter the cost for coastal protection, prevention of urban and rural pollution and the riparian interests. We must think a great deal harder and a great deal further ahead before we bring any water body to the marketplace. I am not against the marketplace. I believe in it, and I was fascinated to hear the argument in favour of a market operation. However, I could never support an operation that meant saying to the business man or the farmer with a meter, "It is your


job to pay for every bit of water pollution, recreation and coastal defence." That would be illogical, and we must not follow that road.
Having said that, I congratulate my hon. Friend the Minister, who has given long and hard consideration, under some very hard pounding—

Mr. John Patten: And long pounding.

Mr. Speller: Indeed, and especially from the west country. That pounding will continue. It will be as the water breaking on the breakwater, until the ministerial breakwater gives way.

Mrs. Ann Clwyd: The old-age pensioners and the low-paid workers who come to my surgery clutching their water bills from the Welsh water authority despair when those bills arrive in their post because they know that they will not obtain any help towards payment. That means a fall in their already poor standard of living. They live in an area of low income, high unemployment and rotten housing. The incredibly high water bills are yet another injustice perpetuated by this Government.
There is an abundance of water in Wales. Water charges and standards of service have been emotive and keenly debated issues in Wales for a long time. Customers of the water services in Wales have many reasons for feeling that they are at a disadvantage compared with people in many areas of England. The average water rates bill in Wales of £110 is the third highest in the country and £34 higher than in the Severn-Trent area, where much of the water comes from Welsh reservoirs. Indeed, more than 20,000 Welsh ratepayers have withheld payment of their water bills in protest at what they see as discrimination in water charges.
Two years ago, the Welsh Affairs Select Committee put forward important proposals to deal with water rates. The two key proposals—that there should be a system of partial equalisation of water rates and a water rates rebate system to ease the burden on Welsh water ratepayers—were rejected, of course, by this Government. The Secretary of State for Wales derided the idea of an equalisation system, saying that it could be achieved only if a national water authority for the United Kingdom was created with
all the penalties in terms of inefficiency and lack of local sensitivity, which would probably be the price of such a large organisation."—[Official Report, Welsh Grand Committee, 21 March 1984; c. 11.]
What could be more insensitive to local feelings than the imposition of these higher water charges on the people of Wales which the Government are trying to enforce tonight?
The Government are proposing to hit the people of Wales again. They are ignoring the sense of grievance over the water issue. Since 1979 the overall increase in Welsh water rates has been 132 per cent in cash and 40 per cent in real terms. That is wholly unacceptable to the people of Wales. I assure the Government that they will make their displeasure known in no uncertain terms.

Mr. Roy Hughes: The order lays down the return on assets for water authorities in England and

Wales. The figures look modest, but with the arcane system of accountancy they constitute a considerable burden, as my hon. Friend the Member for Houghton and Washington (Mr. Boyes) made clear. The figure for Wales has risen from 1·45 per cent in 1985–86 to 1·7 per cent in 1986–87 and will rise to 1·95 per cent in 1987–88.
The Government's policy towards the water industry has been spawned over a number of years. What was essentially a local government service has been taken over. By 1981 our water authorities were committed to current cost accounting, a system most unsuitable for that industry. Reservoirs and sewage installations are built to last a hundred years. Why should people living today bear the whole cost of installations that will serve people not yet born? These are essentially long-term investments and should be financed accordingly.
We know of the Government's obsession with the public sector borrowing requirement, but the fundamental reason for their approach is the pursuit of privatisation. Juicy profits make water installations a rosier prospect for the market place. Water is big business today. The 10 water authorities of England and Wales spend more than £2,000 million per year and employ more than 50,000 people. A great sell-off of those undertakings would certainly enrich the Government's coffers.
Meanwhile, consumers suffer. In Wales we have become accustomed to a standard seasonal announcement. The columns of our newspapers regularly blurt out the message, "Water to cost more next year", but many of the increases are entirely unnecessary. As my hon. Friend the Member for Normanton (Mr. O'Brien) pointed out, there is a contradiction in the Government's policy. Water charges are based on rateable value. The Government are leaning on local authorities to keep rates down, but they are actively striving to drive water charges up. Water is a basic and essential commodity, and in Wales we have an abundant supply, yet further increases of up to 10 per cent are expected in the new year. That is more than double the rate of inflation. It will increase the average Welsh water bill to £124 and make Welsh water the most expensive in the country. It is no wonder that water in Wales is an emotive subject.
The Government are responsible for that preposterous situation. The price of water is being driven up to absurd levels because of their policies. The Secretary of State for Wales sits in the Cabinet and allows these things to happen. A couple of days ago he announced that he would not be standing at the next general election, so he will be little more than a lame duck until then. His staying on is understandable, given the paucity of talent on the Tory Benches.
Yesterday, that most authoritative journal, the Financial Times, in an article by Peter Riddell, considered who would be the next Welsh Secretary.

Mr. John Patten: My hon. Friend the Member for Watford (Mr. Garel-Jones).

Mr. Hughes: The caption to the photograph said that the Secretary of State was "leaving the bridge uncrossed". The headline proclaimed:
Tories scour Wales in the search for Edwards' successor.
The article ran in the form of an advertisement and said:
WANTED: A Welsh-born Tory MP with some administrative and political talent and potential to become a Cabinet minister.
The article said that the existing Under-Secretaries of State were inadequate and that


The other 10 MPs consist mainly of a mixture of those nearing the end of their careers, perpetual undistinguished backbenchers, the unpromotable and the inexperienced.

Mr. Deputy Speaker: Order. I hope that we can get back to the prayer.

Mr. Hughes: What a party claiming to represent Wales! All I can say is that there is no problem for the Tory party, because after the next general election the Secretary of State for Wales will he my hon. Friend the Member for Alyn and Deeside (Mr. Jones).

The Parliamentary Under-Secretary of State for Wales (Mr. Mark Robinson): It is a great pity that the hon. Member for Newport, East (Mr. Hughes) chose the opportunity of what has otherwise been a serious debate to indulge in a personal attack on my right hon. Friend the Member for Pembroke (Mr. Edwards), and to have the discourtesy to do it when my right hon. Friend is not in the chamber to defend himself.

Mr. Roy Hughes: It was not an attack.

Mr. Robinson: My right hon. Friend has done a superb job as Secretary of State for Wales and will continue to do so as long as he is in this House.
Many Opposition Members, while extolling the virtues of increased investment in the water industry, failed to acknowledge that that can be achieved only in the context of authorities being efficient and effective. I entirely agree with my hon. Friend the Member for Eastbourne (Mr. Gow) about the benefits that will be derived from water privatisation. I assure my hon. Friend that it remains our policy that water authorities should sell off land that is surplus to their requirements.
Privatisation will give the water industry freedom to operate in the capital markets and render the need for a debate such as this completely unnecessary. We have heard some alarmist and fictional figures for the likely rise in water charges, including charges in Wales. I am assured that Yorkshire Water charges will go up by only about 5·5 per cent., which I am sure is welcome news to the hon. Member for Normanton (Mr. O'Brien).

Mr. Boyes: Does that include inflation?

Mr. Robinson: Yes.
We expect charges to rise in a band of between 4·5 per cent and 7 per cent. On the basis of my conversation with the chairman of the Welsh water authority, I expect its rise to be within that band rather than the alarmist 10 per cent which the hon. Member for Newport, East mentioned. I do not know where he got that figure from. He is clearly not living in the real world.
Contrary to what the hon. Member for Newport, East said, we have improved the efficiency with which the water industry is run and provided the basis on which we have been able to improve the infrastructure through which water is provided. We have also set out, through such investment, to improve water quality.
The success of the Government's financial policy for the water authorities is clear. Investment has increased by more than 55 per cent., or about 35 per cent in volume terms, after taking account of inflation in construction prices. At the same time, the Government have taken a grip on the legacy of water authority borrowing. Water authorities' operating costs have also been substantially

reduced. There can be no turning back on this policy. Therefore, I commend the f
order to the House and urge hon. Members to vote against the prayer.

Question put:—

The House divided: Ayes 110, Noes 160.

Division No. 46]
[11.30 pm


AYES


Adams, Allen (Paisley N)
Lamond, James


Alton, David
Lewis, Ron (Carlisle)


Archer, Rt Hon Peter
Lewis, Terence (Worsley)


Ashdown, Paddy
Livsey, Richard


Atkinson, N. (Tottenham)
Lloyd, Tony (Stretford)


Banks, Tony (Newham NW)
Lofthouse, Geoffrey


Beckett, Mrs Margaret
Loyden, Edward


Beith, A. J.
McCartney, Hugh


Bell, Stuart
McDonald, Dr Oonagh


Benn, Rt Hon Tony
McGuire, Michael


Bennett, A. (Dent'n &amp; Red'sh)
McKay, Allen (Penistone)


Bermingham, Gerald
MacKenzie, Rt Hon Gregor


Blair, Anthony
McWilliam, John


Boyes, Roland
Madden, Max


Brown, Gordon (D'f'mline E)
Mallon, Seamus


Callaghan, Jim (Heyw'd &amp; M)
Marek, Dr John


Canavan, Dennis
Martin, Michael


Clark, Dr David (S Shields)
Maxton, John


Clay, Robert
Maxwell-Hyslop, Robin


Clelland, David Gordon
Meadowcroft, Michael


Clwyd, Mrs Ann
Michie, William


Cocks, Rt Hon M. (Bristol S)
Nellist, David


Cook, Robin F. (Livingston)
O'Brien, William


Corbyn, Jeremy
Owen, Rt Hon Dr David


Craigen, J. M.
Park, George


Cunliffe, Lawrence
Patchett, Terry


Cunningham, Dr John
Pendry, Tom


Dalyell, Tam
Penhaligon, David


Davis, Terry (B'ham, H'ge H'l)
Pike, Peter


Dixon, Donald
Powell, Raymond (Ogmore)


Dobson, Frank
Raynsford, Nick


Dormand, Jack
Redmond, Martin


Dubs, Alfred
Robertson, George


Duffy, A. E. P.
Rooker, J. W.


Dunwoody, Hon Mrs G.
Rowlands, Ted


Eadie, Alex
Shields, Mrs Elizabeth


Eastham, Ken
Skinner, Dennis


Fatchett, Derek
Smith, C.(Isl'ton S &amp; F'bury)


Fields, T. (L'pool Broad Gn)
Smith, Rt Hon J. (M'ds E)


Fisher, Mark
Snape, Peter


Foster, Derek
Spearing, Nigel


George, Bruce
Steel, Rt Hon David


Godman, Dr Norman
Stott, Roger


Hamilton, James (M'well N)
Straw, Jack


Harrison, Rt Hon Walter
Thomas, Dafydd (Merioneth)


Hogg, N. (C'nauld &amp; Kilsyth)
Thompson, J. (Wansbeck)


Home Robertson, John
Wallace, James


Howarth, George (Knowsley, N)
Wardell, Gareth (Gower)


Howell, Rt Hon D. (S'heath)
Wareing, Robert


Howells, Geraint
Welsh, Michael


Hughes, Robert (Aberdeen N)
Wigley, Dafydd


Hughes, Roy (Newport East)
Winnick, David


Hughes, Simon (Southwark)
Young, David (Bolton SE)


John, Brynmor



Johnston, Sir Russell
Tellers for the Ayes:


Jones, Barry (Alyn &amp; Deeside)
Mr. Ron Davies and


Kirkwood, Archy
Mr. Sean Hughes.




NOES


Aitken, Jonathan
Budgen, Nick


Alison, Rt Hon Michael
Cockeram, Eric


Baker, Nicholas (Dorset N)
Colvin, Michael


Batiste, Spencer
Conway, Derek


Bellingham, Henry
Cope, John


Benyon, William
Dorrell, Stephen


Boscawen, Hon Robert
Douglas-Hamilton, Lord J.


Bottomley, Peter
Dunn, Robert


Bottomley, Mrs Virginia
Fallon, Michael


Brooke, Hon Peter
Favell, Anthony


Brown, M. (Brigg &amp; Cl'thpes)
Forth, Eric


Buck, Sir Antony
Fox, Sir Marcus






Franks, Cecil
Nicholls, Patrick


Fraser, Peter (Angus East)
Norris, Steven


Freeman, Roger
Osborn, Sir John


Galley, Roy
Ottaway, Richard


Garel-Jones, Tristan
Page, Sir John (Harrow W)


Goodlad, Alastair
Page, Richard (Herts SW)


Gow, Ian
Patten, Christopher (Bath)


Greenway, Harry
Patten, J. (Oxf W &amp; Abgdn)


Gregory, Conal
Pollock, Alexander


Griffiths, Peter (Portsm'th N)
Portillo, Michael


Grist, Ian
Powell, William (Corby)


Ground, Patrick
Powley, John


Grylls, Michael
Proctor, K. Harvey


Hamilton, Hon A. (Epsom)
Raffan, Keith


Hamilton, Neil (Tatton)
Rathbone, Tim


Hanley, Jeremy
Rhodes James, Robert


Harris, David
Ridsdale, Sir Julian


Harvey, Robert
Roberts, Wyn (Conwy)


Havers, Rt Hon Sir Michael
Robinson, Mark (N'port W)


Hawkins, Sir Paul (N'folk SW)
Roe, Mrs Marion


Hayward, Robert
Rowe, Andrew


Heddle, John
Sackville, Hon Thomas


Hickmet, Richard
Sainsbury, Hon Timothy


Hind, Kenneth
Sayeed, Jonathan


Hirst, Michael
Scott, Nicholas


Holt, Richard
Shaw, Sir Michael (Scarb')


Howard, Michael
Shelton, William (Streatham)


Howarth, Alan (Stratf'd-on-A)
Shepherd, Colin (Hereford)


Howarth, Gerald (Cannock)
Silvester, Fred


Hubbard-Miles, Peter
Sims, Roger


Hunt, David (Wirral W)
Skeet, Sir Trevor


Hunt, John (Ravensbourne)
Speed, Keith


Jackson, Robert
Speller, Tony


Johnson Smith, Sir Geoffrey
Spicer, Jim (Dorset W)


Jones, Gwilym (Cardiff N)
Spicer, Michael (S Worcs)


Jones, Robert (Herts W)
Stanbrook, Ivor


Key, Robert
Steen, Anthony


Knight, Greg (Derby N)
Stern, Michael


Knowles, Michael
Stevens, Lewis (Nuneaton)


Lang, Ian
Stewart, Allan (Eastwood)


Lawler, Geoffrey
Stewart, Andrew (Sherwood)


Lawrence, Ivan
Temple-Morris, Peter


Leigh, Edward (Gainsbor'gh)
Terlezki, Stefan


Lennox-Boyd, Hon Mark
Thatcher, Rt Hon Mrs M.


Lester, Jim
Thomas, Rt Hon Peter


Lilley, Peter
Thompson, Donald (Calder V)


Lloyd, Peter (Fareham)
Thompson, Patrick (N'ich N)


Lord, Michael
Thorne, Neil (Ilford S)


Lyell, Nicholas
Thurnham, Peter


McCurley, Mrs Anna
Waddington, David


MacKay, Andrew (Berkshire)
Wakeham, Rt Hon John


MacIean, David John
Wall, Sir Patrick


McLoughlin, Patrick
Waller, Gary


McNair-Wilson, M. (N'bury)
Ward, John


Major, John
Wardle, C. (Bexhill)


Malins, Humfrey
Warren, Kenneth


Marlow, Antony
Watts, John


Marshall, Michael (Arundel)
Wells, Bowen (Hertford)


Mather, Carol
Wheeler, John


Mayhew, Sir Patrick
Whitfield, John


Merchant, Piers
Wiggin, Jerry


Meyer, Sir Anthony
Wilkinson, John


Miller, Hal (B'grove)
Wolfson, Mark


Mills, Iain (Meriden)
Wood, Timothy


Moate, Roger
Woodcock, Michael


Morris, M. (N'hampton S)
Yeo, Tim


Morrison, Hon C. (Devizes)



Moynihan, Hon C.
Tellers for the Noes:


Nelson, Anthony
Mr. Francis Maude and


Neubert, Michael
Mr. Tony Durant.

Question accordingly negatived.

Orders of the Day — Private Bill Procedure

Motion made, and Question proposed,

That, in accordance with the resolution of 16th June in the last Session of Parliament, a Select Committee of seven Members be appointed to join with a Committee to be appointed by the Lords to examine the process of enacting Private Legislation and to consider whether:

(a) there are any matters of a kind at present dealt with by Private Bill which could more appropriately be dealt with some other way, taking account of the interests both of Promoters and other affected parties;
(b) any changes arc desirable in Private Bill procedure; and
(c) any amendments are desirable to the Private Legislation Procedure (Scotland) Act 1936 and the procedure thereunder;

and to consider whether any amendments are desirable to the Statutory Orders (Special Procedure) Act 1945.
That the Committee have power to send for persons, papers and records.

That three be the Quorum of the Committee.

That Mrs. Ann Clwyd, Mr. Terry Davis, Sir Anthony Grant, Mr. Patrick McNair-Wilson, Mr. Albert McQuarrie, Mr. Roger Moate and Sir John Stradling Thomas be members of the Committee.—[Mr. Boscawen.]

Mr. Robin Maxwell-Hyslop: This is debatable, is it not, Mr. Deputy Speaker?

Mr. Deputy Speaker (Mr. Ernest Armstrong): No, it is after 10 o'clock. It is not debatable.

Mr. Maxwell-Hyslop: On a point of order, Mr. Deputy Speaker. This is a debatable motion.

Mr. Deputy Speaker: But it has not been exempted.

Mr. Maxwell-Hyslop: No; therefore, I understand that it cannot proceed if hon. Members wish to debate it.

Mr. Deputy Speaker: That is correct.

Mr. Maxwell-Hyslop: I wish to debate it, Mr. Deputy Speaker.

Mr. Deputy Speaker: There is an objection. Further consideration what day? No day named.

Orders of the Day — SCOTTISH GRAND COMMITTEE

Ordered,
That, in the course of its consideration of the matter of Agriculture and Fishing in Scotland, the Scottish Grand Committee may meet in Edinburgh on Monday, 19th January 1987, at half-past Ten o'clock.—[Mr. Boscawen.]

Orders of the Day — TERMS AND CONDITIONS OF EMPLOYMENT

Motion made, and Question put forthwith pursuant to Standing Order No. 101 (Standing Committees on Statutory Instruments &amp;c.),
That the draft Employment Protection (Variation of Limits) Order 1986, which was laid before this House on 2nd December, be approved.
That the draft Unfair Dismissal (Increase of Limits of Basic and Special Awards) Order 1986, which was laid before this House on 2nd December, be approved.
That the draft Unfair Dismissal (Increase of Compensation Limit) Order 1986, which was laid before this House on 2nd December, be approved.—[Mr. Boscawen]

Question agreed to

Orders of the Day — PUBLIC SUPPLY CONTRACTS

Ordered,
That this House takes note of European Community Document No. 8034/86 on public supply contracts, and the Supplementary Explanatory Memorandum from Her


Majesty's Treasury dated 5th December; endorses the view that revisions to the earlier supplies Directives 77/62 and 80/767 are necessary in order to improve public purchasing opportunities throughout the Community; and welcomes the Government's endeavours to amend the proposals so as to reduce the administrative burden on purchasers and suppliers.—[Mr. Boscawen.]

Orders of the Day — Prisoners (Northern Ireland)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen.]

Mr. Seamus Mallon: I very much welcome the opportunity to debate briefly the problem of those, especially young people, who are sentenced under the pleasure of the Secretary of State for Northern Ireland and those who are serving life sentences. This is an opportune time to consider the matter, because the nature of the problem is emphasised at this time of year. It is also important to discuss the matter because, in many ways, we are reviewing many of the provisions and terms of justice in the north of Ireland.
One cannot properly discuss the problem without considering the position of young people in Northern Ireland. They have lived their young lives against a background of unrest and violence. Indeed, an entire generation of young people in the north of Ireland have never known normality, have never known anything but violence and have been unable to adjust to the unrest They are caught in the spiral of violence and they have lived through some very emotional periods.
Youngsters from both sections of the community—Nationalist and Unionist—whatever political opinions they have, have all lived through emotional and emotive times. They include the period after bloody Sunday, when 13 people were killed in Derry, when the Stormont Parliament was prorogued, after the deaths on hunger strike in the prisons. It has also happened because of the catharsis in the Unionist community. Young people have become the pawns in this spiral of violence. They hive become the victims of the godfathers of violence, the hate-mongers, those who wish to incite people to violence. It is for that reason that I ask for a review of the procedure under which their sentences are reviewed, and that should be done in a spirit of compassion and humanity.
I take this opportunity to thank the Minister for the way in which he has approached the problem. I am not sure of the figures, but I believe that about 50 have been released under the review system since 1983, and 12 have been released this year. I ask him, at this time of the year, to take the opportunity substantially to increase that figure, because it is the key to many problems that we are not solving.
We are dealing with legislation that was framed in 1969, when this period of violence, lasting four times as long as the last war, could not have been foreseen. It is inadequate because it was not intended to cope with the problems with which it has to cope. Section 73(1) of the Children and Young Persons Act simply cannot deal adequately with the problems that face it. The period of conflict was not foreseen, and the Act was not drafted to cope with it. It was drafted to ensure two things. The first was that young people did not receive the same sentences as adults, who were in a position to make concious judgments about their decisions. Secondly, it was framed to try to ensure that young people did not serve life imprisonment.
Unfortunately, it has done the opposite. It has ensured that the young person receives the same sentence as the adult prisoner, and is reviewed under the same procedure, with one minor change. It ensures that young people are serving life sentences. I know that it is difficult to define a life sentence, but the same norm is being applied to


young people as is applied to adults in the review of sentences. The same procedure and time scale are used, with one small difference of eight instead of 10 years. They are getting roughly the same lengths of sentence, with the added factor that in the case of a young person's sentence under the Secretary of State's pleasure, the sentence is indeterminate. That in itself creates problems that do not exist for the adult person who has been sentenced to life imprisonment.
I ask the Secretary of State to examine the basis of the legislation and the review procedure. We are reviewing the Emergency Provisions (Northern Ireland) Act, and we shall soon review the police complaints procedure. We shall be reviewing the legislation on public order. Why do we not have a review of this crucial legislation and procedure? I ask the Minister to consider not just adopting a piecemeal approach but repealing the legislation and replacing it with adequate, updated legislation that is capable of dealing humanely and compassionately with the problems as it is now, and not as it was envisaged in 1969. The fact that the term "the death penalty" was used in that legislation shows how outmoded it is.
I ask the Minister to reconsider the indeterminate length of the young offender's sentence. It has a tremendous psychological effect, not just on the prisoner but on his family and the community from which he comes. The Baker report drew attention to this problem. It referred to the
case for compassion and the giving of hope of release at however distant a date.
However distant that date may be, it gives the prisoner, his family and everybody else who is concerned something to hang on to. Indeterminate sentences have a tremendous effect on prisoners. One of the saddest duties is to visit young people in prison who were caught up in violence at a very early age and swept along on an emotional tide, prompted by those who had lost not one minute of their own freedom. They say consistently, "If only I knew when I might be getting out."
There are other consequences. People, especially young people, become institutionalised very quickly. It centres on the despair of not knowing when they may once again experience freedom. They become alienated from the outside world and locked into a very introverted society, where they do not benefit from the good influences that they would experience outside prison. They see no future for themselves. They become disoriented from other influences and displaced in time—like something out of a Kafka novel. That is not a humane way in which to deal with young people who were sentenced before they reached the legal age for sentencing.
I know that the Minister of State is aware of the effect on the family and the community. Parents fear that they may not live to see the release of their son or their daughter. That nagging fear is with them day after day. They become bitter against society and against the process of law. Their bitterness starts to translate itself into what can be a very dangerous factor in the community. They look upon their sons and daughters as the forgotten tools of the manipulators of violence and believe that they are carrying the can for them. Their cases should be considered much more seriously. I do not suggest that the

Minister is not considering them seriously. I know that he is, but he ought to be provided with the power to deal properly with them.
I do not think that there is a simple answer to the question, but I ask the Minister to consider two options. The legislation ought to be repealed, and the Government ought to consider replacing it with a maximum sentence for young people. I realise the dangers. There are obvious dangers connected with maximum sentences, but they would mean that young people had a date in mind from the beginning of their sentence. It would have to be accompanied by a review half way through the maximum sentence. Or perhaps there could be new guidelines—perhaps a judicial review, when evidence could be given. The details would have to be teased out, because dangers and problems accompany each of those lines of approach.
At present, the prisoner does not appear at any of the review board hearings, nor can he be represented at those hearings, when a competent person might put forward his case. He is unaware of the information that is presented to the board, he is provided with no details of it, and he is not advised of the reason for the refusal, if and when his case is reviewed. That is serious, because if the prisoner knew why there was a refusal, when the final review came he could re-examine his position with a lot more efficiency and accuracy. These review boards are held in camera and there is no accountability. That is surely wrong in a place where there is a crisis of confidence in the process of law. We must have accountability, and at present there is no accountability to the prisoner or to any body.
Those especially interested in the cases of young people should be given some role on behalf of the prisoner. As it is, the only role open to such people is to make representations. Beyond that they cannot go. As I said yesterday in relation to the judicial system, the greater the number of minds working on a problem, the better the chance of a proper resolution of that problem.
One of the conditions of a review, an obvious renunciation of association with paramilitary organisations or political organisations which are associated with paramilitary organisations, is an almost impossible condition for people in prison. It is a closed society and pressures are very strong. People feel isolated if they cannot cling to the one bulwark that they know. I know of the need to protect society and to ensure that people will not return to violence, but this condition should be re-examined, because the weight of pressure, especially on young people, during a long prison sentence is quite enormous. Indeed, the pressure is enormous for the ordinary life prisoner. We must seek for and find some way around that.
I am also worried about the dependability of the lower ranks of prison officers. Many of them are not properly trained and do not have the experience to make the type of judgment that is expected of them. I do not rule out the possibility of prejudice. In prison where people live closely together, there is almost a hothouse atmosphere and ordinary likes or dislikes start to come into play. A way must be found of getting round the problem of people who do not have basic training or expertise and a way must also be found to assess the attitudes of people employed in the prison system.
I conclude by making a plea to the Minister. As we approach the season of peace, and as the bells start to ring in a new year, I ask him to be generous and humane in his provision for parole and for the release of prisoners,


especially young people sentenced at the pleasure of the Secretary of State and people who have spent a long time in prison under a life sentence. I suggest to the Minister that the greatest enemy of peace in Northern Ireland, as elsewhere, is despair. He has an opportunity to foster hope by taking the type of action that I suggest, not as a gesture, but in the sure knowledge that such releases in themselves release a new spirit in the family and in the small community areas. That new spirit will expand and will have a tremendous influence.
I know that the most potent weapon against hatred and violence is compassion and benevolence. I have seen the effect of those things on communities that are regarded as very hardline. I know that substantial releases would be reciprocated 100-fold and would help us to continue with the task of creating peace in Northern Ireland, a peace based on humanity and compassion.

The Minister of State, Northern Ireland Office (Mr. Nicholas Scott): I am grateful to the hon. Member for Newry and Armagh (Mr. Mallon) for raising this matter. As I respond to the points that he has made it will become clear that there is not a lot of difference between us. This Christmas, the home leave that we give to prisoners in Northern Ireland will be as generous as possible. We have a scheme that is unique within the United Kingdom, and, in organising that Christmas home leave scheme, we shall seek to be as responsive to the special role of the family, particularly in Northern Ireland, and the need to show that prisoners who fulfil the criteria for home leave are treated as generously as possible.
The hon. Gentleman has analysed the pressures on young people who were caught up in the troubles at the beginning of the 1970s. Many of them, either because they felt their community was under threat or because they were under physical or other threat to respond to the godfathers to perform on behalf of their community, now find themselves in prison while others have gone free and have not been made amenable to the law.
I want to see a prison administration, and an attitude towards those who are in prison for indeterminate sentences in particular, that is as liberal and humane as we can make it, as long as, at the back of our minds, we always have the importance of the safety of the public and, in so far as it is humanly possible, we are sure that those who are released from prison do not embark on a campaign of violence again and threaten the lives or safety of individuals outside.
The hon. Gentleman rightly set this matter against the background of other measures that we are taking, such as those relating to public order, the police complaints reforms and the emergency provisions legislation. I know that in a number of those areas he would have wanted us to go further and faster than the Government have felt able to do, but we are moving on those matters and the way in which we approach life sentence and the Secretary of State's pleasure cases is part of a process of seeking a balance between the safety of the public, on the one hand, and a proper treatment of those who are in prison, on the other.
The hon. Gentleman talked about the effect of indeterminate sentences on young people. He said—and I am sure that it is true in some cases—that some of them become institutionalised and suffer because of that. I must set against that, because it is an area that I take

seriously, the considerable opportunities that exist for education in prison. Anybody who listened to the radio programme "Out of the Maze" a couple of weeks ago on the education system in Northern Ireland will remember that one young prisoner said that prison was the best thing that ever happened to him because he had been able to avail himself of the opportunity that it gave him to widen his horizons and educate himself about life in general. I am sure that he will not be involved in any violence when he is released.
I am not diminishing the impact of the indeterminate sentence on young prisoners; I am just saying that some may be institutionalised and some may suffer unduly because of it, but others will seize the opportunity that it offers and come out better able to cope with life outside.
It is worth while reminding ourselves why we have the sentence of detention during the Secretary of State's pleasure. It originates, as the hon. Gentleman said, from a time when capital punishment existed, to which young people were not subject. There are equivalent forms of that sentence in other parts of the United Kingdom and elsewhere. We in Northern Ireland cannot consider it alone, and I doubt whether we could move away from an indeterminate to a determinate sentence for somebody who has taken another person's life or been part of an operation that cost somebody his life.
The decision that has to be taken is not a judicial but an executive one. Could an individual, who has cost an innocent person his life, be freed unless one was sure that he would not embark on the same course again? That could not easily be put to a court, certainly not a court of first instance. I would be reluctant to go down the road, suggested by the hon. Gentleman, of judicial review, with a prisoner being present and legally represented, and with reasons being given for refusal. I take this procedure seriously.
I take the closest possible personal interest and try to be as liberal and humane as I can be without imposing any extra risk on the community. I have read carefully the document produced by the party of the hon. Member for Newry and Armagh and listened carefully to what he said tonight. However, I would take a lot of persuading to believe that we should move back into a judicial or executive area, in this difficult and sensitive territory. I believe that the Government's record is good in this area. I have tried to strike the best balance between the interests of prisoners and those of society outside.
The hon. Member asked about the numbers who have been involved in the procedure. Since the board was set up we have considered 360 cases. Some cases have been considered more than once, and I think that the figures that have appeared as a result of the process show that we have made positive progress. A total of 51 prisoners—22 life sentence prisoners and 29 young persons, Secretary of State's pleasure cases—have been given dates since the process started. As a matter of interest, 23 were Republican, 25 were Loyalist, and three did not fit easily into either category.
The prisoners are usually given a date about a year in advance of their release. I do not take a firm view whether a year should be absolute. In a recent case where a prisoner had an opportunity for employment immediately available to him, we took the view that he could be released in advance of a year. We may consider in future whether a


prisoner would need as long as a year to prepare himself for re-entry into the wider world, especially when he has a clear entry into outside life.
In addition to the numbers I have mentioned—51 with dates, 23 released—following the two most recent meetings of the Life Sentence Review Board—we have to consult the judges about these cases—another 15 prisoners are in the pipeline; that is, we are consulting the judiciary about their situation. Subject to the views of the judiciary, we may be able to give them dates. I believe that the figures show clear evidence of our desire to have a positive approach to the problem.
I know that there are some who say that we should go further and faster. I am particularly aware of the views of Father Faul, who believes that if we went much faster the impact of the releases on the community would be so dramatic that we could swiftly bring to an end the campaign of violence in Northern Ireland. I wish that I could go along with Father Faul, but I have some reservations about going that fast. However, I am aware of the impact that individual releases can have in the community. I have to try to get the balance right between the risk to the community, the benefits that can flow to individual prisoners and the community, and the climate for peace that we can get by a systematic consideration of the cases and by trying to treat them as liberally and sensibly as possible.
We have to be sure that a person who is sentenced to prison serves a period that is sufficient to meet the gravity of the offence that he or she has committed. We have to be sure that the prisoner will not repeat his offence or commit some other crime of violence if he is let out. We do not ask any prisoner to renounce his political beliefs. We have announced dates and released prisoners from inside the compounds and from segregated wings inside the Maze prison. We do not regard that as a total bar to setting a date for release. As I have said, a prisoner does not have to renounce his political views, but, where an indeterminate sentence is being served, we need to be satisfied that he will not repeat his offence outside.
In coming to a conclusion as to whether a prisoner will or will not commit another offence outside, factors that must be taken into account are the organisation to which

he or she has some allegiance and the level of violence outside the prison. These factors must be weighed in the balance when considering the likelihood of an offence being committed. If the organisations that are committed to violence in the north of Ireland were to renounce violence as a way of achieving their political ends, that would obviously affect the judgment that I and my right hon. Friend the Secretary of State have to make about the release of prisoners. If the threat of violence were removed, that would affect our judgment of the likelihood of prisoners being caught up again in a campaign of violence.

Mr. Mallon: I ask the Minister to consider the other side of the coin. I believe that many paramilitary organisations wish certain prisoners to remain in prison and do not want to see them out. They want to use them as a propaganda weapon. They have always used imprisonment as a propaganda weapon. The more that a possible increase in violence is made a factor, the more we play into the hands of those who want to keep prisoners in prison rather than see them released. They are a propaganda weapon when they are in prison—much more so than if they were released into society.

Mr. Scott: I take that point. We have embarked on the process that is under discussion because we want to be fair and responsive to the needs of those who are in prison and the way that they were caught up in the violence. I am not unaware that if we behave sensibly and responsively we could undermine the pressures that the paramilitary organisations put on those outside prison.
We consider especially carefully the cases of young prisoners who were young and vulnerable when they became involved in terrorist-type crimes. We shall always view their cases with considerable sympathy. I assure the House, and especially the hon. Gentleman, that I consider every individual's case, as does the Life Sentence Review Board, as carefully as possible at the appropriate interval in the light of all the information that is available. I know that often shadowy figures—they are called the godfathers—have not been made amenable to the law while many young prisoners have—

The Question have been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twelve minutes past Twelve o'clock.